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COnsider a risk averse consumer who has an initial wealth of $5000. With probability of 10%, this consumer incurs a loss of $2000 due to

COnsider a risk averse consumer who has an initial wealth of $5000. With probability of 10%, this consumer incurs a loss of $2000 due to illness. Suppose that this person is indifferent between their endowment and having $3500 with certainty.

What is the actuarially fair rate of insurance for $1 of insurance:

How much insurance will the consumer purchase if they face actuarially far rates:What is the risk premium?

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