Suppose that Person B wants to purchase full insurance and enter the same risk pool as...
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Suppose that Person B wants to purchase full insurance and enter the same risk pool as Person A. Since they would be in the same risk pool, the insurer would charge Person A and Person B the same premium. Suppose Person A has a Pmax for full insurance equal to $14 and Person B has a Pmax for full insurance equal to $24. a. What premium would be required to charge each of Person A and Person B if the insurer wanted to break-even? b. Will Person A purchase full insurance for the break-even premium? Why or why not? c. Will Person B purchase full insurance for the break-even premium? Why or why not? | d. Comment on the viability of the risk pool under this circumstance. In other words, would the risk pool continue to work? Suppose that Person B wants to purchase full insurance and enter the same risk pool as Person A. Since they would be in the same risk pool, the insurer would charge Person A and Person B the same premium. Suppose Person A has a Pmax for full insurance equal to $14 and Person B has a Pmax for full insurance equal to $24. a. What premium would be required to charge each of Person A and Person B if the insurer wanted to break-even? b. Will Person A purchase full insurance for the break-even premium? Why or why not? c. Will Person B purchase full insurance for the break-even premium? Why or why not? | d. Comment on the viability of the risk pool under this circumstance. In other words, would the risk pool continue to work?
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Answer rating: 100% (QA)
ANSWERS a The breakeven premium for each person would be 19 b Person A would not purchase ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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