Let P = (0.7, 100, 15) be a risky prospect. State 2 could be thought of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Let P = (0.7, 100, 15) be a risky prospect. State 2 could be thought of as the occurrence of an accident which imposes a financial loss of 15 (figures could be thousands of euros). An insurance company is willing to sell insurance cover against the accident at a premium rate of p € (0, 1). If the utility function of the individual is v(y) = y¹/2, which is the maximum premium rate that would be accepted by the decision-taker? (Hint: calculate the premium rate that makes zero the demand for insurance cover). Which is the amount of insurance cover contracted by the individual if p = 0.305? Which is the cost of insurance? Does he contract a complete cover against his potential accident loss? Which would be the premium rate to contract a complete cover? Why this is not an option? Let P = (0.7, 100, 15) be a risky prospect. State 2 could be thought of as the occurrence of an accident which imposes a financial loss of 15 (figures could be thousands of euros). An insurance company is willing to sell insurance cover against the accident at a premium rate of p € (0, 1). If the utility function of the individual is v(y) = y¹/2, which is the maximum premium rate that would be accepted by the decision-taker? (Hint: calculate the premium rate that makes zero the demand for insurance cover). Which is the amount of insurance cover contracted by the individual if p = 0.305? Which is the cost of insurance? Does he contract a complete cover against his potential accident loss? Which would be the premium rate to contract a complete cover? Why this is not an option? Let P = (0.7, 100, 15) be a risky prospect. State 2 could be thought of as the occurrence of an accident which imposes a financial loss of 15 (figures could be thousands of euros). An insurance company is willing to sell insurance cover against the accident at a premium rate of p € (0, 1). If the utility function of the individual is v(y) = y¹/2, which is the maximum premium rate that would be accepted by the decision-taker? (Hint: calculate the premium rate that makes zero the demand for insurance cover). Which is the amount of insurance cover contracted by the individual if p = 0.305? Which is the cost of insurance? Does he contract a complete cover against his potential accident loss? Which would be the premium rate to contract a complete cover? Why this is not an option? Let P = (0.7, 100, 15) be a risky prospect. State 2 could be thought of as the occurrence of an accident which imposes a financial loss of 15 (figures could be thousands of euros). An insurance company is willing to sell insurance cover against the accident at a premium rate of p € (0, 1). If the utility function of the individual is v(y) = y¹/2, which is the maximum premium rate that would be accepted by the decision-taker? (Hint: calculate the premium rate that makes zero the demand for insurance cover). Which is the amount of insurance cover contracted by the individual if p = 0.305? Which is the cost of insurance? Does he contract a complete cover against his potential accident loss? Which would be the premium rate to contract a complete cover? Why this is not an option?
Expert Answer:
Answer rating: 100% (QA)
The individual will purchase insurance if the expected utility with insurance denoted as Uinsurance ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Following the 2017 General Election and change of government, the Labour-led coalition government established a Tax Working Group (TWG) to consider the overall structure, balance and fairness of the...
-
A capacitor has a capacitance of 7.28 F. What amount of charge must be placed on each of its plates to make the potential difference between its plates equal to 25.0 V?
-
USA Corporation hired Jesse to install a computer system for the company and paid him $8,000 for the work. USA soon realized that there were problems with the system and asked Jesse to refund the...
-
Estimate the overall odds ratio of the set of tables in Problem3.6 and test whether the odds ratios are the same across the tables. Problem3.6 is: 3.6 Use the DOS data to test whether there is gender...
-
The following are misstatements that have occurred in Fresh Foods Grocery Store, a retail and wholesale grocery company: 1. The incorrect price was used on sales invoices for billing shipments to...
-
The sphere 2+ y+z = 36 and the plane x + y + z = -10 intersect in an ellipse. Use Lagrange multipliers, or any other method, to find the lowest point (= point with minimal z-value) on this ellipse....
-
Toronto Cricket Property Inc. (TPI) has been incorporated with the purpose of build and operate a world-class cricket stadium outside Toronto. The land on which the stadium will be build is currently...
-
Identify the key components of organizational structure that exist in your workplace and discuss the effects of your organizational structure on employee performance. apply your personal experience...
-
What is the major reason for the Profitability of the wireless communications services industry tends to be low throughout the world. ?
-
Eastman Service Enterprises bills Trait Company for janitorial services rendered. Eastman's journal entry to record the collection of the account will include a credit to Owner's Capital. Service...
-
Problems Exercise 47 Assuming that an ounce (weight), how much does a gallon of water weigh, in pounds? What is the weight of the water in a swimming pool containing 6400 gallons of water?
-
A federal tax law enacted in 2017 did what with respect to the Affordable Care Act's individual mandate?
-
Assume you are preparing an indirect cash flow statement. Please identify the section (Activities) of the cash flow statement and whether the change represents a source or a use of cash.
-
You are working on a bid for a contract. Thus far, you have determined that you will need $156,000 for fixed assets and another $32,000 for networking capital at Time 0. You have also determined that...
-
For each of the following transactions, indicate whether it increases, decreases, or has no effect on the following financial ratios: current ratio, debt-to-equity ratio, profit margin ratio, and...
-
Quince Interests is a partnership with a tax year that ends September 30, 2012. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership...
-
Patty Bayan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2012, Patty has no dependents, and her W-2 from her job at a local...
-
Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2012. The truck is not considered a passenger automobile for purposes of the listed property...
-
Whenever Aliza buys a flashlight, she also always buys exactly two batteries along with it. Any more than two batteries will serve no purpose, because she will not be able to use them in the...
-
State governments in India levy a value-added tax on the sale of goods. The rate of this sales tax varies by type of good and by state. In Maharashtra, the general rate of sales tax is \(12.5 \%\),...
-
Divit enjoys watching team sports and considers tickets to kabaddi and badminton games to be perfect substitutes. Show his preference map. What is his utility function?
Study smarter with the SolutionInn App