A typical London cyclist might expect to earn £40k a year. This is reduced to £20k for one year following a serious injury. The annual probability of a serious injury is 35%. (a) What is the expected annual income of a cyclist in London? (b) A group of risk-adverse London cyclists agree to form a charity providing insurance. Those paying a fixed annual premium will receive £20,000 in the event of an accident. What is the “fair” (zero-profit) premium for this insurance policy? Show your work. (c) Research has found that wearing a yellow head-protector can reduce the annual risk of injury to zero. Show in a large clearly labelled graph the maximum price that a risk-adverse cyclist would pay for a head-protector. Note: the answer given does not need to be precise but must be consistent with your graph.
A typical London cyclist might expect to earn £40k a year. This is reduced to £20k for
one year following a serious injury. The annual probability of a serious injury is 35%.
(a) What is the expected annual income of a cyclist in London?
(b) A group of risk-adverse London cyclists agree to form a charity providing
insurance. Those paying a fixed annual premium will receive £20,000 in the
event of an accident. What is the “fair” (zero-profit) premium for this
insurance policy? Show your work.
(c) Research has found that wearing a yellow head-protector can reduce the
annual risk of injury to zero. Show in a large clearly labelled graph the
maximum price that a risk-adverse cyclist would pay for a head-protector.
Note: the answer given does not need to be precise but must be consistent with
your graph.
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