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how did we get 85,001 for the risk premium First, we have to compute the expected utility of the individual's risk. E(U(W))=piU(Wi)=.1U(1)+.1U(50,000)+.8U(100,000)=.1(0)+.1(10.81978)+.8(11.51293)=10.292322 Next, what level
how did we get 85,001 for the risk premium 
First, we have to compute the expected utility of the individual's risk. E(U(W))=piU(Wi)=.1U(1)+.1U(50,000)+.8U(100,000)=.1(0)+.1(10.81978)+.8(11.51293)=10.292322 Next, what level of wealth would make him indifferent to the risk? lnWWW=10.292322=e102012=29.505 The maximum insurance premium is Riskpremium=E(W)certaintyequivalent=$85,000.1$29,505 Step by Step Solution
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Auditing A Complete Guide To Perform Internal And External Audits
Authors: Tim Power
1st Edition
1801490031, 978-1801490030
