Question: Suppose an individual has the following utility function defined over wealth: u(w) =w The individual has an initial wealth value of $20,000. The individual has

Suppose an individual has the following utility function defined over wealth: u(w) =w

The individual has an initial wealth value of $20,000. The individual has a 20% chance of a heart attack and the monetary loss associated with the attack is $5,000.

What is the expected monetary loss from a heart attack?
What is the maximum amount this individual is willing to pay for insurance against a heart attack?
What is the risk premium?

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