Question: 3.Assumptions: * Initial Wealth = W1,000 * Premium Loading = 20% of Pure Premium U(W) = Inw *Probability distribution of Loss Probability Loss 0.5 0

3.Assumptions: * Initial Wealth = W1,000 * Premium Loading = 20%

3.Assumptions: * Initial Wealth = W1,000 * Premium Loading = 20% of Pure Premium U(W) = Inw *Probability distribution of Loss Probability Loss 0.5 0 0.1 80 0.2 160 0.1 400 0.1 800 Will a risk averse person prefer (1) no insurance, (2) full insurance, (3) insurance with a W80 deductible, (4) partial insurance with a 25% participation clause, (5) partial insurance with a coverage limit equal to W200 ? (20)

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