Question: Exercise 3 (36 points) Your utility function is U = (a, where C is the amount of consumption that you have in any given period.

Exercise 3 (36 points) Your utility function is U = (a,

Exercise 3 (36 points) Your utility function is U = (a, where C is the amount of consumption that you have in any given period. Your income is $40,000 per year, and there is a 2% chance that you will be involved in a catastrophic accident that will cost you $30,000 next year. (a) What is your expected utility? (b) Calculate an actuarially fair insurance premium. What would your expected utility be were you to purchase the actuarially fair insurance premium? c What is the most that on would be willin to a for insurance iven our utilit function? y g p y a g y y

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