You have a collection of valuable artwork worth $400,000. Suppose that you have preferences represented by the
Question:
a. Considering that the current value of your artwork is your reference point, what is the most you would be willing to pay for the coverage? Express this as a percentage of $400,000.
b. Now, suppose while you are filling out the paperwork, you are informed that a freak accident has destroyed half of your collection, leaving you with only $200,000 worth of rare artwork. If we consider $400,000 to be the reference point, now what is the maximum percentage of $200,000 you would be willing to pay to buy insurance that will replace $200,000 should the remaining art be destroyed?
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a Your willingness to pay assuming a reference point of 400000 could be found by solving ...View the full answer
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