Business, 23.06.2020 20:01 svarner2001
Consider a household that possesses $160,000 worth of valuables such as jewelry. This household faces a 0.02 probability of a burglary, where she would lose jewelry worth $50,000. Suppose it can buy an insurance policy for $15,000 that would fully reimburse the $50,000. The household's utility function is:
U(X)equals4Upper X Superscript 0.5.
1. Should the household buy this insurance policy?
2. What is the actuarially fair price for the insurance policy?
3. What is the most that she is willing to pay for an insurance policy that fully covers it against loss?
Answers: 1
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Consider a household that possesses $160,000 worth of valuables such as jewelry. This household face...
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