What is the maximum price you'd be willing to pay for Full insurance (that would completely restore the value of the vehicle in the event of an accident)?
What is the maximum price you'd be willing to pay for Full insurance (that would completely restore the value of the vehicle in the event of an accident)?
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
Related questions
Question
![You have a car valued at $40,000. You fear that
you have a 5% chance of a car accident this year
and would estimate that the car would lose 40%
of its value in such a case. Given that your
personal net wealth, aside from the car, is
$120,000 and that your utility function is given
by the expression:
U(w) = w0.6
What is the maximum price you'd be willing to
pay for Full insurance (that would completely
restore the value of the vehicle in the event of an
accident)?
[Please give your answer in dollar terms to the
penny, thus if you find the answer to be
$45.2394235 please type 45.24]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb78129f9-5503-458a-869e-05bf523ecdaf%2F6f9ab110-bc30-4cdf-85b3-bbac76ab3252%2Fok3ij1_processed.png&w=3840&q=75)
Transcribed Image Text:You have a car valued at $40,000. You fear that
you have a 5% chance of a car accident this year
and would estimate that the car would lose 40%
of its value in such a case. Given that your
personal net wealth, aside from the car, is
$120,000 and that your utility function is given
by the expression:
U(w) = w0.6
What is the maximum price you'd be willing to
pay for Full insurance (that would completely
restore the value of the vehicle in the event of an
accident)?
[Please give your answer in dollar terms to the
penny, thus if you find the answer to be
$45.2394235 please type 45.24]
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