1. Pankti is risk averse. Without insurance, she receives income of $40,000 with a prob-ability of 02 and income of $60,000 with a probability of .98. She is offered fairinsurance against income loss. How much insurance does Pankti purchase? What isher consumption in each state? (Note: Pankti forgoes the premnium regardless ofwhich state she ends up in.)

Given , Probability of getting 40,000 = 0.02 Probability of getting 60,000 = 0.98 Pankti should…

. Pankti is risk averse. Without insurance, she receives income of $40,000 with a prob ability of .02 and income of $60,000 with a probability of .98. She is offered fai insurance against income loss. How much insurance does Pankti purchase? What i her consumptionm in each state? (Note: Pankti forgoes the premnium regardless o hich stote sho cude

. Pankti is risk averse. Without insurance, she receives income of $40,000 with a prob ability of .02 and income of $60,000 with a probability of .98. She is offered fai insurance against income loss. How much insurance does Pankti purchase? What i her consumptionm in each state? (Note: Pankti forgoes the premnium regardless o hich stote sho cude

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 5PA

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A5
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