A certain neighbourhood is comprised of houses whose market value (including all items and personal belongings) is approximately 100,000. You know that there is the possibility that those houses are damaged by fire, in which case their value falls to only 90,000. According to some reports, similar neighbourhoods have experienced a rate of 10 fire incidents out of 100 houses on average. The same reports assure that the owners of those properties are usually risk-averse individuals, and that their utility function with respect to wealth is () = .

Task:

You are asked to advice an insurance company on their housing insurance policy campaign in the specified neighbourhood. In particular, the company asks for a brief report that includes the following issues:

2. The expected value of the owners' wealth, taking into account the fire hazard, and the expected value of the loss.

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