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- Exercise 2 Zhao owns a motocycle worth 50000$ which has a probability to be stolen equal to 0.01. To face the risk of robbery
- Exercise 2 Zhao owns a motocycle worth 50000$ which has a probability to be stolen equal to 0.01. To face the risk of robbery she can purchase coverage of the amount q [0; 50000] at premium = 0.05$ for each $ covered.
Zhaos utility function is U = ln(w)
Questions: 1- Set up Zhaos maximization problem.
2- How much insurance will Zhao choose to buy?
3- How much profits does the insurance company earn on insuring Zhao?
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