Suppose the Ajax Insurance Company Provides Insurance for Skydivers Whose

Suppose the Ajax Insurance Company provides insurance for skydivers whose wealth before diving is $400.An accident will leave divers with a wealth of $100.The company divides the divers into two classes,safe (probability of an accident = 0.2) and unsafe (probability of an accident = 0.5) .The utility of wealth for all divers is given by the function: U(w) = w^0.5.Given this information,the divers are:

A) risk-averse.
B) risk seeking.
C) risk-neutral.
D) indifferent to risk.
E) risk-averse, risk seeking, or risk-neutral; we cannot tell from this information.

Correct Answer:

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