Question

Below is a given spreadsheet with the Utility function, U(X) = (X^.75)/.75.

Question

1. How were the answers found for Expected Utility (EU) and Certainty Equivalent (CE) for fire damage and Hurricane damage?

2. How were the answers for Joint Risk EU, Joint Risk CE and Max Annual Premium found?

Homeowner's Insurance Fire Damage Hurricane Risk Home Value 200000 Fire Risk 0.25 Hurricane Damage 100000 50000 0.3 Expected Fire Damage 12500 Expected Hurricane Damage 30000 EU EU CE 187168 CE 168244 11998 11076 Max Premium 12832 Max Premium 31756 Total Premium 44588 150000 0.25 Fire EU 0.3 100000 10848 Hurricane EU 11076 0.75 No Fire 0.7 200000 No Hurricane Joint Risk EU 10848 Joint Risk CE 163634 Max Annual Premium 36366 Homeowner's Insurance Fire Damage Hurricane Risk Home Value 200000 Fire Risk 0.25 Hurricane Damage 100000 50000 0.3 Expected Fire Damage 12500 Expected Hurricane Damage 30000 EU EU CE 187168 CE 168244 11998 11076 Max Premium 12832 Max Premium 31756 Total Premium 44588 150000 0.25 Fire EU 0.3 100000 10848 Hurricane EU 11076 0.75 No Fire 0.7 200000 No Hurricane Joint Risk EU 10848 Joint Risk CE 163634 Max Annual Premium 36366