Jackie is considering buying tornado insurance. Currently, without insurance, she has a wealth of $80,000. A tornado ripping through her homestead will reduce her wealth by $60,000. The chance of this happening is 1%. An insurance company will offer to compensate Jackie for 80% of the damage that any tornado imposes, provided she pays a

premium. Her utility function for wealth is given by U(w) = In (w).

What is the maximum

amount Jackie is willing to pay for this insurance?