Question
Kat's disposable income is $10,000 per month. Each month there is a 20% chance of a storm damaging Kat's home, causing damage that will cost
Kat's disposable income is $10,000 per month. Each month there is a 20% chance of a storm damaging Kat's home, causing damage that will cost $5100 to repair. (There is a 80% chance that nothing will happen.) Kat's preferences are represented by the utility function U(I)=I where I represents Kat's income. Use the information provided to answer the following questions: The expected value of the lottery is . Kat's expected utility from the lottery is . The fair price of an insurance policy that completely compensates Kat in the event of an accident is . Kat's risk premium is . If Kat is offered an insurance policy for the price of $1200, she will .
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