Doruk studies in Paris and uses a bike to getaround. If his bike is stolen he would have to replace it whichwould cost him 300 EURO. He finds out that 20 % of thebikes in Paris are stolen every year. His total wealth is 400 EURO for a year. His utility of money function is given byU(x) = x .

c) Suppose that the insurance company pays pays him 108 EURO and asks as the Premium 39 Euro. Does Doruk accept this partial coverage insurance ? What will be thelowest payment so that Doruk will accept paying 39 Euro for that partial coverage?

d) Calculate the fair premium that the insurance companywould ask Doruk if it gives a partial coverage in the amountof 108 EURO .