Mr. Isaac estimates profit for his business at the end of the year will be GHe100,000 if no law suit is filed against his business operations. The probability of a law suit is 0.05 and the loss if a suit occurs is GH$50,000. Ignoring profit loadings, investment income and administrative cost, how much should he pay for full liability insurance coverage? Using the cubic utility function U(x) = = vx, write down his wealth and the utility distributions. 

Determine the total cost of risk and the cost of uncertainty due to risk aversion of Mr. Isaac

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To determine how much Mr Isaac should pay for full liability insurance coverage we need to calculate the expected value of his profit with and without insurance Without insurance Probability of no law... View the full answer