Question: (20p) A homeowner with utility function u(x)=x1/3 is considering a fire insurance. There is a 2.5% possibility of a fire, which can cost her $90,000.

(20p) A homeowner with utility function u(x)=x1/3

(20p) A homeowner with utility function u(x)=x1/3 is considering a fire insurance. There is a 2.5% possibility of a fire, which can cost her $90,000. Her initial wealth $120,000. 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 first company offers (P1;D1)=($3,600;$3,600) and (P2;D2)= ($2,400;$9,600). 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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