Consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a "standard contract" with the premium r=$100 and payout q=$500 to anyone who will purchase it?

ANSWERS FOR

a1) Premium (r) = $100 Payout (q)= $500 Healthy state Income Ih = $500 Sick stateIncome IS = $0 Probability of Illness = 0.10

Fair contract = Premium (r ) = prob.(p) x payout (q) Unfair contact = Premium (r ) > prob.(p) x payout (q Unfair contract = $100 > .10 x $500 Unfair contact = $100 > $50 Expected profit = healthy income (Ih) - premium(r) Expected profit= $500 -$100 = $400 Expected profit = Sick income (IS) - premium(r) + payout(q) Expected profit = $0 - $100 + $500 Sick state income = $400 Its unfair contact Profit = $400 b.

Premium (r) = $100 Payout (q)= $500 Healthy state Income Ih = $500 Sick stateIncome IS = $0 Probability of Illness = 0.20

Fair contract = Premium (r ) = prob.(p) x payout (q) Unfair contact = Premium (r ) > prob.(p) x payout (q fair contract = $100 = 0.20 x $500 fair contact = $100 = $100 Expected profit = premium(r) - prob.(p) x payout(q) Expected profit= $100 - 0.20 x $500 Expected profit = $0 Its fair contact Profit = $0 c.

Premium (r) = $100 Payout (q)= $500 Healthy state Income Ih = $1000 Sick stateIncome IS = $0 Probability of Illness = 0.20

Fair contract = Premium (r ) = prob.(p) x payout (q) Unfair contact = Premium (r ) > prob.(p) x payout (q fair contract = $100 = .20 x $500 fair contact = $100= $100

NEED HELP WITH D & F and graphing a,b,c,d

D) suppose thereis a customer named ronald for whom the standard contract is partial and actuarilly unfair in the insurance companys favor. Give a set of possible values for Ronald's I_h, I_s, and p. Recall that we always assume I_h>I_s. (d) also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S

F) true or false: if we assume all four individuals are risk averse, then we know that TIm has the most to gain by taking up the contract. justify your answer.

ALSO PLEASE GRAPH

number 12 (a) also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S

number 12 (b) also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S

number 12 (c) also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S

number 12 (d) also graph the policy and label the locations and values of I_H , I_S , E(I), I_H , I_S