B C G M N P Q R S T U V W X Y 2 1. Cynthia is a self-employed management consultant earning $95,000 annually. She does not have health insurance but knows that in a given year, there is a 5 percent probability she will develop a serious illness. If so, she could expect medical bills to be as high as $35,000. Cynthia derives utility from her income, Y, according to the following formula: U = Y(0.4) (i.e. Y raised to the 0.4 power), where Y = income. Use this information to answer the questions below. 18 19 a. What is Cynthia's expected utility. (3 pts.) 0 Note: Round to two decimal places. 21 27 b. What is Cynthia's maximum willingness to pay for health insurance? (3 pts.) 28 Note: Round to nearest whole number. 29 30 36 37 38 c. What is Cynthia's risk premium? (2 pts.) 9 Note: Enter a formula to calculate the risk premium (round to nearest whole number). 40 41 42 43 44 45 46 d. Cynthia is offered an individual, full-coverage health insurance policy for which she would have to pay a $2,700 annual premium. 47 She is in the 24 percent tax bracket and could deduct the insurance premium from her taxable income. 48 Would she buy the policy, and would the tax deduction affect (or change) her decision? Briefly explain. (3 pts.) 49