FREE Trial

A small businesswoman faces a 10% chance of having a fire that will reduce her net worth to $1.00, a

Question:

A small businesswoman faces a 10% chance of having a fire that will reduce her net worth to $1.00, a 10% chance that fire will reduce it to $50,000, and an 80% chance that nothing detrimental will happen, so that her business will retain its worth of $100,000. What is the maximum amount she will pay for insurance if she has a logarithmic utility function? In other words, if U (W) = In W, compute the cost of the gamble.

This problem has been solved!


Do you need an answer to a question different from the above? Ask your question!

Step by Step Answer:

Answer rating: 60% (10 reviews)

First we have to compute the expected utility of the individuals ris…View the full answer


answer-question
Answered By
tutor-profile-image
Pushpinder Singh
Currently, I am PhD scholar with Indian Statistical problem, working in applied statistics and real life data problems. I have done several projects in Statistics especially Time Series data analysis, Regression Techniques. I am Master in Statistics from Indian Institute of Technology, Kanpur. I have been teaching students for various University entrance exams and passing grades in Graduation and Post-Graduation.I have expertise in solving problems in Statistics for more than 2 years now.I am a subject expert in Statistics with Assignmentpedia.com.
4.40+ 3+ Reviews 10+ Question Solved
Related Book For  answer-question
Financial Theory and Corporate Policy

Financial Theory and Corporate Policy

ISBN: 978-0321127211

4th edition

Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri

See More Books
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Question Posted: April 26, 2016 08:23:53
See More Questions

Students also viewed these Corporate Finance questions

Q:
a. Discuss how Melissa's communication style impacted the performance of the Italian partners. b. What do you think were the primary sources of information prior to Melissa's visit? c. What do you...
A:
a She read their body language and listened closely to their questions Her responsiveness and openne......
Q:
Your firm faces a 9% chance of a potential loss of $10 million next year. If your firm implements new policies, it can reduce the chance of this loss to 4%, but these new policies have an upfront...
A:
a New policies reduce the chance of loss by 9 4 5 for an expected savings of 5 10 million 500 000 Th......
Q:
Digital Convert (DC) is a three- year- old start- up company with most of its capital coming from banks and personal investments by the founders. DC manufactures a high- resolution scanner (MXP35)....
A:
a Profits are maximized at a wholesale price of 1 240 and a quantity of 20 units as calculated in th......
Q:
Determine the real roots of (x) = - 1 + 5.5x 4x2 + 0.5x3: (a) Graphically and (b) Using the Newton-Raphson method to within s = 0.01%.
A:
a A graph of the function indicates that there are 3 real roots at approximately 0 2......
Q:
A firm with a 14 percent WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: a. Calculate NPV, IRR, MIRR, payback, and...
A:
Computation of the following a Discounted Flow Year Project A Project B Discount Rate 14 Project A P......
Q:
In the FIFA Womens World Cup 2019, a tie at the end of two overtime periods leads to a shootout with five kicks taken by each team from the penalty mark. Each kick must be taken by a different...
A:
11 C5......
Q:
Desire Limited is in the business of manufacturing high fashion accessories. The company sold certain goods with an invoice price of 25 million to one of its customer offering him a discount of 2% on...
A:
The transaction involving the sale of goods with a discount and the subsequent payment within the di......
Q:
Refer to the financial statements for Castile Products, inc., in Exercise 16-7. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share...
A:
Click to View...
Q:
A school nurse is called to assess a preadolescent, a newly immigrated Vietnamese person attending a new school. A teacher tells the nurse that the student sits in the back of the class and won't...
A:
The detailed answer for the above question is provided below In this case th......
Q:
Consider two ideas (v,c), where idea 1 is (5,25), and idea 2 is (4,15). Suppose that, at most, one idea may be selected. We are using the efficiency of the ideas to determine which idea should be...
A:
solution a if r 2 idea 2 should have been selected b when r 4 idea......
Q:
Suppose that A > B > C > D and that the utilities of these alternatives satisfy U(A) + U(D) = U(B) + U(C). Is it true that U(1/2B + 1/2C) is greater than U(1/2 A + 1/2D) because the former has a...
A:
We are given that A B C D Also we know that U A U D U B U C Transposing we have U A......
Q:
If you are exposed to a 50/50 chance of gaining or losing $1,000 and insurance that removes the risk costs $500, at what level of wealth will you be indifferent relative to taking the gamble or...
A:
The utility function is U W W 1 Therefore the level of wealth corresp......
Q:
A point charge Q creates an electric potential of + 165 V at a distance of 15 cm. What is Q?
A:
Use Eq 17 5 to fi......
Q:
Give structural formulas and systematic names for possible isomers of dichlorobenzene, C 6 H 4 Cl 2 .
A:
Dichlorobenzene with the molecular formula C6H4Cl2 has thre......
Q:
Aldehydes and carboxylic acids are formed by oxidation of primary alcohols, and ketones are formed when secondary alcohols are oxidized. Give the name and formula for the alcohol that, when oxidized,...
A:
a The given product is CH3CH2CH2CHO which is an aldehyde Aldehydes are for......
Q:
Sketch the region of integration and change the order of integration. f*f* f(x, y) dy dx Jo Jo
A:
The region of integration is shown in the sketch below The......
Q:
Benzoic acid occurs in many berries. When humans eat berries, benzoic acid is converted to hippuric acid in the body by reaction with the amino acid glycine H 2 NCH 2 CO 2 H. Draw the structure of...
A:
Hippuric acid is an amide formed by the reaction of the carboxylic acid group of benzo......
Q:
Elemental analysis of a colorless liquid has given its formula as C 5 H 10 . You recognize that this could be either a cycloalkane or an alkene. A chemical test to determine the class to which this...
A:
To distinguish between a cycloalkane and an alkene using bromine we can perform the following test A......
Q:
Analyze the double pane glass-covered collector described in 24.1.2 and illustrated in Figure 24.14. T g is assumed to be fixed at 300 K by conduction and convection and I 0 1000 W/m 2 . Write the...
A:
With no power harvested radiative equilibrium just abo......
Q:
Research an article from an online source, such as The Economist, Wall Street Journal, Journal of Economic Perspectives, American Journal of Agricultural Economics, or another academic journal. The...
A:
A Synopsis of Case Study The selected journal article for this review is Julia Angwin Dana Mattioli s Sept 2012 Coming Soon Toilet Paper Priced like A......
Q:
Tax rates refer to the corporate marginal tax rate information in Table 2.3. a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then...
A:
a T he tax bubble causes average tax rates to catch up to marginal tax rates......
Q:
Financial Statements draw up an income statement and balance sheet for this company for 2006 and 2007.
A:
Cash Accounts receivable Inventory Current assets Net fixed assets Total assets Cash Accounts recei......
Q:
Calculating Cash Flow for 2007, calculate the cash flow from assets, cash flow to creditors, and cash flow to stockholders.
A:
OCF EBIT Depreciation Taxes 2 363 723 672 18 2 413 82 Change in NWC NWC nd NWCbeg CA CL e......
Selsun Blue Moisturizing Anti-dandruff Shampoo With Aloe - ISBN: B001TSNM34 - Free Book