ussessed at $792999. What is the risk premium ($) you'd be willing to gainst this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 22 isk premia is the amount you'd be willing to pay over the expected los Answer:
ussessed at $792999. What is the risk premium ($) you'd be willing to gainst this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 22 isk premia is the amount you'd be willing to pay over the expected los Answer:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
D4)
Transcribed Image Text:You have a net worth of $901395 and a utility function given by u(w) = w0.5. If your house
%3!
catches fire, a 3% likelihood of occurring, you expect it to be total loss and it was recently
assessed at $792999. What is the risk premium ($) you'd be willing to pay for full coverage
against this fire risk?
Hints: Compute the certainty equivalent (CEQ) as you did in Comm 220 and recall that the
risk premia is the amount you'd be willing to pay over the expected loss
Answer:
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