Larry owns a house that would cost $100,000 to replace should it ever be destroyed by fire. There is a 0.1% chance that the house could be destroyed during the course of a year. Larry's utility-of-wealth function is U = W ^0.5 .

A) How much would fair insurance cost that completely replaces the house if destroyed by fire

B) Assuming that Larry has no other wealth, how much would he be willing to pay for such an insurance policy Why the difference

Answer rating: 100% (QA)

A Fair insurance would cost 0001 100000 100 Larrys expected utility ... View the full answer