answer the questions 11-15

QUESTION 1 Use the following scenario to answer the questions below. Suppose there are two equal size groups of people, careless drivers and careful drivers. Careless drivers have a 10% chance to have an accident and careful drivers have a 1% chance to have an accident. Both types of people have utility U=Ln(C), where is the amount of consumption that people have in any period. People spend their entire income of $40,000. In case there is an accident, the cost of car repairs is $10,000. However, insurance companies do not reimburse the full cost of car repairs. Even when individuals are fully insured, individuals have to pay an amount called the deductible. When insurance plans are generous, individuals pay low deductibles, and when insurance plans are not generous, individuals pay high deductibles. For questions (1) to (9), consider the following. Suppose an insurance company has two plans. The first plan is a high deductible plan, which covers car repairs above $7.000 (which is the amount of the deductible). The second plan is a low deductible plan, which covers car repairs above $700 (which is the amount of the deductible). Calculate the actuarially fair premium in the high deductible plan for the careful driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 30 O 93 O 300 0930 QUESTION 2 Calculate the actuarially fair premium in the high deductible plan for the careless driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 30 093 O 300 0930 QUESTION 3 Calculate the actuarially fair premium in the low deductible plan for the careful driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 100 O 1000 O 93 O 930 QUESTION 4 Calculate the actuarially fair premium in the low deductible plan for the careless driver. (Hint: you have to think as if you were the insurance company and consider the expected amount you would expect to reimburse in case of an accident). money that O 100 O 1000 093 0 930 QUESTION 5 Calculate the expected utility for the careful driver if he chose the high deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 0 10.5941 O 10.5713 QUESTION 6 Calculate the expected utility for the careless driver if he chose the high deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 O 10.5941 O 10.5713 QUESTION 7 Calculate the expected utility for the careful driver if he chose the low deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 10.5941 O 10.5713 QUESTION 8 Calculate the expected utility for the careless driver if he chose the low deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) 10.5697 10.5939 10.5941 O 10.5713 QUESTIONS Based on answers (5) to (8), the careful driver chooses the and the careless driver chooses the O low deductible;high deductible low deductible; low deductible O high deductible; low deductible O high deductible; high deductible QUESTION 10 For questions (10) to (15), you will suppose that the insurance company does not know who is a careful driver or a careless driver and decides to offer the same low deductible plan to all drivers, and the same high deductible plan to all drivers. The actuarially fair premium is $_____for the low deductible plan and $___for the high deductible plan? 0550; 3850 O 3850; 511.5 O 165; 511.5 O 511.5; 165 QUESTION 11 What is the expected utility for the careful driver with the high deductible plan? O 10.57 O 10.58 10.59 O 10.61 QUESTION 12 What is the expected utility for the careless driver with the high deductible plan? O 10.57 O 10.58 O 10.59 O 10.61 QUESTION 13 What is the expected utility for the careful driver with the low deductible plan? O 10.57 O 10.58 10.59 10.61 QUESTION 14 What is the expected utility for the careless driver with the low deductible plan? 10.57 10.58 O 10.59 10.61 QUESTION 15 deductible plan and the careless driver chooses the deductible plan. Based on your answers to questions (11) to (14), the careful driver chooses the O high; low high; high O low; low low; high QUESTION 1 Use the following scenario to answer the questions below. Suppose there are two equal size groups of people, careless drivers and careful drivers. Careless drivers have a 10% chance to have an accident and careful drivers have a 1% chance to have an accident. Both types of people have utility U=Ln(C), where is the amount of consumption that people have in any period. People spend their entire income of $40,000. In case there is an accident, the cost of car repairs is $10,000. However, insurance companies do not reimburse the full cost of car repairs. Even when individuals are fully insured, individuals have to pay an amount called the deductible. When insurance plans are generous, individuals pay low deductibles, and when insurance plans are not generous, individuals pay high deductibles. For questions (1) to (9), consider the following. Suppose an insurance company has two plans. The first plan is a high deductible plan, which covers car repairs above $7.000 (which is the amount of the deductible). The second plan is a low deductible plan, which covers car repairs above $700 (which is the amount of the deductible). Calculate the actuarially fair premium in the high deductible plan for the careful driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 30 O 93 O 300 0930 QUESTION 2 Calculate the actuarially fair premium in the high deductible plan for the careless driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 30 093 O 300 0930 QUESTION 3 Calculate the actuarially fair premium in the low deductible plan for the careful driver. (Hint: you have to think as if you were the insurance company and consider the expected amount of money that you would expect to reimburse in case of an accident). O 100 O 1000 O 93 O 930 QUESTION 4 Calculate the actuarially fair premium in the low deductible plan for the careless driver. (Hint: you have to think as if you were the insurance company and consider the expected amount you would expect to reimburse in case of an accident). money that O 100 O 1000 093 0 930 QUESTION 5 Calculate the expected utility for the careful driver if he chose the high deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 0 10.5941 O 10.5713 QUESTION 6 Calculate the expected utility for the careless driver if he chose the high deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 O 10.5941 O 10.5713 QUESTION 7 Calculate the expected utility for the careful driver if he chose the low deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) O 10.5697 O 10.5939 10.5941 O 10.5713 QUESTION 8 Calculate the expected utility for the careless driver if he chose the low deductible plan. (Hint: Think of what the driver has to pay in terms of repairs and insurance and how it affects his consumption and utility. Drivers pay insurance premiums whether they have an accident or not.) 10.5697 10.5939 10.5941 O 10.5713 QUESTIONS Based on answers (5) to (8), the careful driver chooses the and the careless driver chooses the O low deductible;high deductible low deductible; low deductible O high deductible; low deductible O high deductible; high deductible QUESTION 10 For questions (10) to (15), you will suppose that the insurance company does not know who is a careful driver or a careless driver and decides to offer the same low deductible plan to all drivers, and the same high deductible plan to all drivers. The actuarially fair premium is $_____for the low deductible plan and $___for the high deductible plan? 0550; 3850 O 3850; 511.5 O 165; 511.5 O 511.5; 165 QUESTION 11 What is the expected utility for the careful driver with the high deductible plan? O 10.57 O 10.58 10.59 O 10.61 QUESTION 12 What is the expected utility for the careless driver with the high deductible plan? O 10.57 O 10.58 O 10.59 O 10.61 QUESTION 13 What is the expected utility for the careful driver with the low deductible plan? O 10.57 O 10.58 10.59 10.61 QUESTION 14 What is the expected utility for the careless driver with the low deductible plan? 10.57 10.58 O 10.59 10.61 QUESTION 15 deductible plan and the careless driver chooses the deductible plan. Based on your answers to questions (11) to (14), the careful driver chooses the O high; low high; high O low; low low; high