You own a house that costs $200,000 to build. You buy a compensate you for damage to the house. The deductible is $25,000. (If your house suffers $4,000 damage from a storm, you pay for all repairs yourself. If the house suffers $45,000, in damage, you pay $25,000 and the insurance company pays the remaining $20,000.) (1) Graph the positions of the unhedged home, the home insurance and the hedged home position on the profit and loss diagram. In the diagram, specify the relevant values on the diagram. (2) To which trader type the insurance company belong? Explain your answer. a. Call buyer b. Call seller
You own a house that costs $200,000 to build. You buy a compensate you for damage to the house. The deductible is $25,000. (If your house suffers $4,000 damage from a storm, you pay for all repairs yourself. If the house suffers $45,000, in damage, you pay $25,000 and the insurance company pays the remaining $20,000.) (1) Graph the positions of the unhedged home, the home insurance and the hedged home position on the profit and loss diagram. In the diagram, specify the relevant values on the diagram. (2) To which trader type the insurance company belong? Explain your answer. a. Call buyer b. Call seller
Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 3RP
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![: "Home insurance and options"
You own a house that costs $200,000 to build. You buy a $15,000 insurance policy to
compensate you for damage to the house. The deductible is $25,000. (If your house
suffers $4,000 damage from a storm, you pay for all repairs yourself. If the house suffers
$45,000, in damage, you pay $25,000 and the insurance company pays the remaining
$20,000.)
(1) Graph the positions of the unhedged home, the home insurance and the hedged
home position on the profit and loss diagram. In the diagram, specify the relevant
values on the diagram.
(2) To which trader type the insurance company belong? Explain your answer.
a. Call buyer
b. Call seller
c. Put buyer
d. Put seller](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F03032124-1fd4-427a-83bd-8220074f5a74%2Ffde44ecc-4ba1-44c8-8d0b-fbff351ed52b%2Flhy45oj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:: "Home insurance and options"
You own a house that costs $200,000 to build. You buy a $15,000 insurance policy to
compensate you for damage to the house. The deductible is $25,000. (If your house
suffers $4,000 damage from a storm, you pay for all repairs yourself. If the house suffers
$45,000, in damage, you pay $25,000 and the insurance company pays the remaining
$20,000.)
(1) Graph the positions of the unhedged home, the home insurance and the hedged
home position on the profit and loss diagram. In the diagram, specify the relevant
values on the diagram.
(2) To which trader type the insurance company belong? Explain your answer.
a. Call buyer
b. Call seller
c. Put buyer
d. Put seller
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