An insurance company is risk neutral and a potential customer has a constant coefficient of risk aversion equal to 0.1.

Given that there is a .01 chance that the customer's $10,000 car will be destroyed by an accident in the coming year, how much should the customer be willing to pay for insurance? What would be the insurance company’s minimum selling price? Would they be able to agree on a deal?

Answer rating: 100% (QA)

Value of Car 10000 Chance that Car will be destroyed 001 Potential c... View the full answer