Diblo's friend Triblo has also bought a house on the Hayward fault and is thinking about earthquake insurance. His wealth W = $3,000,000. An earthquake would destroy his house and reduce his wealth by $1,000,000. Triblo views the probability of such a quake to be 10%. Triblo's utility isU = ln(W/1000)where W is wealth in dollars and ln(...) is the natural log function, which is the inverse function of ("undoes") the exponential function, exp(...).

a) What is the expected value of Diblo's wealth given the risk of the earthquake?

b) What is the most Triblo would be willing to pay for insurance coverage that would compensate him for the full value of his loss if an earthquake occurs?