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3. Diego is considering buying life insurance. The life insurance will pay out $1 million when he dies. For simplicity, assume that the premium for
3. Diego is considering buying life insurance. The life insurance will pay out $1 million when he dies. For simplicity, assume that the premium for the life insurance is a 1-time payment of $500,000 today. Diego is uncertain about when he will die. There is a 10% chance he dies in the first period, a 60% chance he dies in the second period, and a 30% chance he dies in the third period. There is a 50% discount rate between each period. Should Diego buy the insurance (i.e. is his expected value positive)? (HINT: You'll need to consider both Present Discounted Value and Expected Value to solve this.)
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