CASE 1: NO-INSURANCE (ai) Write down the expression for your final wealths Wholoss and Wiass in the no-loss and loss state, respectively. (ali) Write down the expression for your EU(L) and calculate it. (aiii) Calculate your Certainty Equivalent CE? [HINT: "(CE) = EU(L)]. (aiv) Calculate your Risk Premium RP? [HINT: RP = Wo-CE, which should be obvious from your graphical illustrations if you did part (5b) correctly]. CASE 2: INSURANCE (bi) Suppose you can purchase an insurance to fully cover your loss L =$10,000 at an actuarially fair premium rate (HINT: Fair Premium is Plair = Probability(L) x L). Write down the expression for your final wealths Whodass and Wloss (bii) Write down the expression for your EU(L) and calculate it. CASE 3: COMPARE CASES 1 AND 2 (ci) Compare your EU(L) in both cases. What does that imply about your decision to purchase insurance? (cii) Compare your RP in CASE 1 with the actuarially fair pre- mium pair in CASE 2. What does that imply about your decision to purchase insurance? What does that imply about insurance com- panies' price-setting strategies: amount of loading and etc? 5