An insurance company estimates that drivers have 1% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors could only recover $5,000. What is the fair price of insurance and will those with $5,000 in the bank buy it? Why?
An insurance company estimates that drivers have 1% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors could only recover $5,000. What is the fair price of insurance and will those with $5,000 in the bank buy it? Why?
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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An insurance company estimates that drivers have 1% chance of getting into
an accident that will cost the driver $10,000. There are two types of drivers:
the ones with $50,000 in the bank and the ones with only $5,000. In case of an
accident those with $5,000 will declare bankruptcy and creditors could only
recover $5,000. What is the fair price of insurance and will those with $5,000
in the bank buy it? Why?
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