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Good day please assist with this risk analysis management question if possible do in word add google drive for easy copy and paste and if
Good day please assist with this risk analysis management question if possible do in word add google drive for easy copy and paste and if written well
a) Provide a reason why a company would prefer to hedge over taking an insurance to minimize on risks. (4 marks) b) Your house is worth $200,000. Your risk of a catastrophic flood is 0.5 percent. Such a flood would destroy your house and would not be covered by homeowner's insurance. Although you grumble, you buy flood coverage for $1,200. Are you being Risky or Risk Averse? Justify your answer. (4 marks) c) There are 200 people of two types on the road: good drivers and bad drivers. Good drivers (G) have a 1% chance of causing an accident while bad drivers (B) have a 5% chance of causing an accident. The proportion of bad drivers is 0.5, so the proportion of good drivers is 0.5. The cost of an accident is $6,000. Good drivers have a willingness to pay for insurance of $200 while bad drivers have a willingness to pay of $400. 1. Suppose the insurance company knows each driver's type. What premium would th insurance company charge each type of driver? (Assume the insurance company breaks even, so the premium is equal to the expected cost.) (4 marks)|l. Now suppose that the insurance company does not know the driver's type. What would the insurance company's expected prot be if it charged premiums based on the indiuidual's selfreported type? [4 marks} III. Now suppose that the insurance company does not know the driver's type. What premiums would the insurance company charge if they did not have any information on the driver's type? Is there a pooling equilibrium? [4 marks]Step by Step Solution
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