H ng.cengage.com a w MlndTap - Cengage Learning a ; Rebecca v i: CENGAGE I MINDTAP Q Search this course My Home Problems: Chapters 17, 19, and 20 o X Courses Back to Assignment Attempts Catalog and Study Tools I I Average I 3 Rental Options 8 . Individual Problems 20-4 College Success Tips Suppose that every driver faces a 4% probability of an automobile accident every year. An accident will, on average, cost each driver $15,000. Career Success Tips Suppose there are two types of individuals: those with $120,000.00 in the bank and those with $3,750.00 in the bank. Assume that individuals with $3,750.00 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. Assume Help that both types of individuals are only slightly risk averse. Give Feedback In this scenario, the actuarially fair price of full insurance, in which all damages are paid by the insurance company, is 1; Assume that the price of insurance is set at the actuarially fair price. At this price, drivers with $120,000.00 in the bank likely V buy insurance, and those with $3,750.00 in the bank likely V buy insurance. (Hint: For each type of driver, compare the price of insurance to the expected cost without insurance.) Suppose a state law has been passed forcing all individuals to purchase insurance at the actuarially fair price. True or False: The law will affect the behavior of both types of drlvers. False True It Now Save & Continue Continue without saving