Question: how to solve question4 3. Assumptions: * Initial Wealth = W1,000 * Risk Premium - 30% of Pure Premium U(W) - LOG(W) Probability distribution of

how to solve question4

3. Assumptions: * Initial Wealth = W1,000 * Risk Premium - 30% of Pure Premium U(W) - LOG(W) "Probability distribution of Loss Probability Loss 0.5 0 80 0.2 160 0.1 400 0.1 800 0.1 Will a risk averse person prefer (1) no insurance (2) full insurance:(3) insurance with a W60 seductible (4) partial insurance with a 25%participation clause (20) *Chint): Wealth i = Initial Wealth - Gross Premium - Li + Insurance Payment i 4."While the term 'short straddle'may seem far removed from an insurance company's investment p olicy, it is common for an insurer to be in a position similar to that of the short straddle" Do you agre e to the above sentence? Explain why or why not. (6) 3. Assumptions: * Initial Wealth = W1,000 * Risk Premium - 30% of Pure Premium U(W) - LOG(W) "Probability distribution of Loss Probability Loss 0.5 0 80 0.2 160 0.1 400 0.1 800 0.1 Will a risk averse person prefer (1) no insurance (2) full insurance:(3) insurance with a W60 seductible (4) partial insurance with a 25%participation clause (20) *Chint): Wealth i = Initial Wealth - Gross Premium - Li + Insurance Payment i 4."While the term 'short straddle'may seem far removed from an insurance company's investment p olicy, it is common for an insurer to be in a position similar to that of the short straddle" Do you agre e to the above sentence? Explain why or why not. (6)

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