Question: (20p) A homeowner with utility function u(x)=lnx is considering a fire insurance. There is a 1% possibility of a fire, which can cost her $75,000.

(20p) A homeowner with utility function u(x)=lnx

(20p) A homeowner with utility function u(x)=lnx is considering a fire insurance. There is a 1% possibility of a fire, which can cost her $75,000. Her initial wealth $100,000. If she chooses to purchase an insurance policy, she will pay an insurance premium P up front and, in case of a fire, she will pay an additional deductible amount D. She got offers from two insurance companies, where the first company offers (P1;D1)=($3,000;$3,000) and (P2;D2)= ($2,000;$8,000). Determine the best option for her and determine the CE as well as RP associated with that option. Is she risk-averse, -neutral or -lover

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