Suppose U = M0.5 and M = $1,000,000 and there is a .01 probability of an accident that will reduce your wealth to 10,000.a. E(M)b. E(U(M))c. What is the most you would pay to avoid this risk?b. How much would a person be willing offer as insurance against this risk if they were risk neutral?

Suppose U = M0.5 and M = $1,000,000 and there is a .01 probability of an accident thatwill reduce your wealth to 10,000.a. E(M)b. E(U(M))c. What is the most you would pay to avoid this risk?b….