Misato is an insurance agent at Nery Insurance International. Ritsuko, one of her clients, has the following utility function: 4 U(w) = 60(0.001w) - (0.001w)2- where w 2 0 denotes her wealth. Assume that her initial wealth is $10,000 and that she is planning to spend $8,000 on her new vehicle Renault Alpine A310. She is interested in purchasing an insurance policy against stolen. Based on historical records, Ritsuko lives in an area where the probability of a new car being stolen is 12.5%. Misato offers her a policy of a deductible of $1,500 (meaning that if the car is stolen, the compensation received is $6,500 instead of $8,000). You may assume that Ritsuko is an expected utility maximiser. 4 (a) Evaluate the maximum premium that that insurance company that Misato represents can charge. + (b) Comment on the legitimacy of U(') as a utility function for Ritsuko. 4 (c) Calculate the risk premium for purchasing the insurance for Ritsuko. Describe her risk preference. Misato is an insurance agent at Nery Insurance International. Ritsuko, one of her clients, has the following utility function: 4 U(w) = 60(0.001w) - (0.001w)2- where w 2 0 denotes her wealth. Assume that her initial wealth is $10,000 and that she is planning to spend $8,000 on her new vehicle Renault Alpine A310. She is interested in purchasing an insurance policy against stolen. Based on historical records, Ritsuko lives in an area where the probability of a new car being stolen is 12.5%. Misato offers her a policy of a deductible of $1,500 (meaning that if the car is stolen, the compensation received is $6,500 instead of $8,000). You may assume that Ritsuko is an expected utility maximiser. 4 (a) Evaluate the maximum premium that that insurance company that Misato represents can charge. + (b) Comment on the legitimacy of U(') as a utility function for Ritsuko. 4 (c) Calculate the risk premium for purchasing the insurance for Ritsuko. Describe her risk preference