(1) A person has wealth of $ 40000. If they have an accident they mush spend $ 30000 on car repairs. Their utility function is given by U = w1/2 where w is equal to their wealth . They do not get into an accident with 90% chance and they get into an accident with 10 % chance. What is the total fair premium for full insurance for this person. (2) Risk pooling can decrease risk if: a) Risks are independent b) risks are dependent c) enough people pool their risk d) if the amount if risk is small enough e) if people have different risk preference
(1) A person has wealth of $ 40000. If they have an accident they mush spend $ 30000 on car repairs. Their utility function is given by U = w1/2 where w is equal to their wealth . They do not get into an accident with 90% chance and they get into an accident with 10 % chance. What is the total fair premium for full insurance for this person. (2) Risk pooling can decrease risk if: a) Risks are independent b) risks are dependent c) enough people pool their risk d) if the amount if risk is small enough e) if people have different risk preference
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Kindly assist on questions below.
(1) A person has wealth of $ 40000. If they have an accident they mush spend $ 30000 on car repairs. Their utility function is given by
U = w1/2
where w is equal to their wealth . They do not get into an accident with 90% chance and they get into an accident with 10 % chance.
What is the total fair premium for full insurance for this person.
(2) Risk pooling can decrease risk if:
a) Risks are independent
b) risks are dependent
c) enough people pool their risk
d) if the amount if risk is small enough
e) if people have different risk preferences
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