An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The money in the bank is safe, but there is a 50%probability that the car will be stolen. The utility of wealth for the agent is u(y) = In(3) and they have no other assets.How much the individual would be willing to pay for a full car insurance, i.e., where the indemnity is equal to the value of the car?A risk-neutral insurance company is willing to insure the car at the premium of = £2/3 for every onepound of coverage.How much insurance coverage will the individual choose to buy?How much profits, in expectation, does the insurance company earn on insuring the individual?

Answered: ch the individual would be willing to…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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ch the individual would be willing to pay for a full car insurance, i.e., where the indemnity is equal to the value of the car? eutral insurance company is willing to insure the car at the premium of a = £2/3 for every one of coverage.