Jacob is considering buying hurricane insurance. Currently, without insurance, he has a wealth of $80,000. A hurricane ripping through his home will reduce his wealth by $60,000. The chance of this happening is 1%. An insurance company will offer to compensate Jacob for 80% of the damage that any tornado imposes, provided he pays a premium. Jacob’s utility function for wealth is given by U(w) = In (w). (A) What is the maximum amount Jacob is willing to pay for this insurance? Show work and explain.

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