- 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?