Question: Please solve, thanks : Insurance. Suppose an individual has initial wealth in. With prob. p an accident occurs such that she will lose an amount

Please solve, thanks :

Insurance. Suppose an individual has initial wealth in. With prob. p an accident occurs such that she will lose an amount of money;r L. The individual can buy insurance which pays her 9' dollars in case the accident happens. The price for insurance is m; where 91' is the premium per dollar of coverage. The expected prot of the insurance is given by in; pq which we a$sume to be zero due to competition; thus 211' = p. The individual is a risk aveI'Se expected utility maximizer with vNM utility 19(3) = 3'5 where :1: is her nal wealth level. How much coverage :3 does the individual choose to buy? Dapict the individual's situation in a 2-statesofthew0rld diagram

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