Chapter 7 Question 12

Peter has healthy-state income = $500 and sick-state income = $0. He has probability of illness p = 0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be?

B. a.Tim has = $500 and = $0, but his probability of illness p = 0.2, higher than Peter's. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tim's expected income?

C. Jay has = $1,000 and = $0, with probability of illness p = 0.2. Is the standard contract fair and/or full for Jay?