You have a house worth 300,000. A fire will burn everything to the ground and leave $0 in value. Assume full coverage in the case of a fıre. In every given year, there is a 5% probability that your home burns. If your Utility function is U=Wealth/2 How much would you be willing to pay (the premium) for insurance? O 15,800 O 45,850 O 15,000 O 29,250

You have a house worth 300,000. A fire will burn everything to the ground and leave $0 in value. Assume full coverage in the case of a fıre. In every given year, there is a 5% probability that your home burns. If your Utility function is U=Wealth/2 How much would you be willing to pay (the premium) for insurance? O 15,800 O 45,850 O 15,000 O 29,250

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You have a house worth 300,000. A fire will burn everything to the ground and leave $0 in value. Assume full coverage in the case of a fıre. In every given year, there is a 5% probability that your home burns. If your Utility function is U=Wealth1/2 what is your expected utility without insurance? O 512 O 520.33 O 212 O $250,000
2. Maria has $100. There is a 50% that she will lose all of it. Her utility as a functionof wealth is u(c) = √c. a. What is the maximum amount she would be willing to pay to fully insure againstthe 50% probability of the loss? b. Is she risk averse, risk loving, or risk neutral?
Q5
According to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b covariance O c. the normal distribution assumption O d. diminishing marginal utility of income