Use the graph pictured above to answer the next five questions. You will have to estimate values that fall between two grid lines.

a.

Find the actuarially fair premium (AFP) for insurance completely protecting against the risk of losing $120.

b.

Find the dollar value of expected claims to the insurer for this insurance.

c.

Find the break-even premium for this insurance.

d.

What is the economic value of this insurance to this individual?

e.

What is the largest amount of money this individual would be willing to pay for this insurance?

U (utility) 20 40 60 80 100 120 140 Y (income) There is a 75% chance of this individual receiving an income of $140, and there is a 25% chance of the individual losing $120, which would reduce his/her income to $20. U (utility) 20 40 60 80 100 120 140 Y (income) There is a 75% chance of this individual receiving an income of $140, and there is a 25% chance of the individual losing $120, which would reduce his/her income to $20