Suppose my utility function for asset position x is given by u (x)100I now have $20,701 and am considering the following two lotteries:L1: With probability 0.5 I gain $10000With probability 0.5 I lose $10000L2: With probability 0.85 I gain $3,317With probability 0.15 I lose $8,029What is the risk premium of L2? Round your answer to the nearest integer.

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Answered: Suppose my utility function for asset…

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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Avicenna, a major insurance company, offers five-year life insurance policies to 65-year-olds. If the holder of one of these policies dies before the age of 70, the company must pay out $27,400 to the beneficiary of the policy. Executives at Avicenna are considering offering these policies for $765 each. Suppose that for each holder of a policy there is a 3% chance that they will die before the age of 70 and a 97% chance they will live to the age of 70. If the executives at Avicenna know that they will sell many of these policies, should they expect to make or lose money from offering them? How much? To answer, take into account the price of the policy and the expected value of the amount paid out to the beneficiary. Avicenna can expect to make money from offering these policies. In the long run, they should expect to make dollars on each policy sold. O Avicenna can expect to lose money from offering these policies. In the long run, they should expect to lose dollars on each policy…
47. A person has a yearly income of $100,000 which gives him 100 units of utility. This person has a 10% chance of getting an illness that would result in the total loss of a year's income. What is this person's expected loss? O a. $10,000 O b. $20,000 O c $30,000 O d. $40,000 O e. None of the above.
A company estimates that 0.1% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $350. If they offer a 2 year extended warranty for $18, what is the company's expected value of each warranty sold?
Your school is selling raffle tickets as a fundraiser. They sell tickets for $5 each, there are 10 winners for $20, 5 winners for $30, and 1 winner for $100. If 200 tickets are sold what is your expected value?
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you are thinking of selling your house and you reckon that there is a 0.1 probability that you will sell it for $120 000, a 0.5 probability that you will receive $100 000 for it and a 0.4 probability that you will only receive $80 000. What is the expected selling price of the property? Interpret your result.
John and Larry are fundraisers for UNO. A wealthy benefactor says that he will match whatever John raises in the month of June – so if John raises 10,000 the benefactor will contribute an additional 10,000; if John raises 15,000, the benefactor will contribute an additional 15,000, etc. If John’s average monthly fundraising figure (expected value) is $25,000, and Larry’s is $30,000, what is the expected value for how much money UNO will raise in June?Explicitly state any properties of expectation you use to justify your conclusion.
Illustration 32. The publishing company's estimate of profits and losses and their respective probabilities on the publication of this book during the first yer are as follows : Profit/Loss Probability Condition 500000 .20 If successful If moderate 200000 .30 If unsuccessful -100000 .50 Find the expected value of the profit of the company for this book during the first year.
A company offers a 2-year warranty on a product for $35. Replacing the product to the consumer who purchases the warranty costs the company $200. The quality control division estimates that 0.25% of their products will fail within the fırst 2 years. What is the company's expected value for each warranty sold?
here is a 0.9988 probability that a randomly selected 28-year-old male lives through the year. A life insurance company charges $176 for insuring that the male will live through the year. If the male does not survive the year, the policy pays out $80,000 as a death benefit. Complete parts (a) through (c) below. a. From the perspective of the 28-year-old male, what are the monetary values corresponding to the two events of surviving the year and not surviving? b. If the 28-year-old male purchases the policy, what is his expected value? c. Can the insurance company expect to make a profit from many such policies? Why?
Assume that the probability of a security breach is 1 percent. The chance of your computer system being damaged during such an attack is 5 percent. If the system is damaged, the average estimated damage will be $ 50 million. What is the expected loss in dollars? In the above question, an insurance agent is willing to insure your facility for an annual fee of $35,000.00. Should the company accept the offer based on the cost benefit analysis?

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