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the es Andres is a homeowner with an expected utility function u(x) = 1- e-a where x is his wealth measured in million USD and u(x) satisfi expected utility hypothesis. Andres' entire wealth is his house worth 1 (million USD). However, his house can be destroyed by a tsunami that will reduce its value to 0. The probability of a tsunami destroying his house and reducing its value to 0 equals 7 (0,1). 1. Is Andres risk-averse, risk-lover or risk-neutral? ii. What is the largest premium P that Andres is willing to pay for (full insurance? iii. Suppose that a local insurance company, InsLocal, has insured n identical houses, all in the neighborhood of Andres, for a premium P per house. Suppose that the probability i represents the tsunami destroying all houses (i.e., either all houses are destroyed or none of them is destroyed). Suppose that P is small enough that Andres has fully insured his house. Having insured his house, a new business opportunity arises for Andres. He is offered to buy 1 of the insurance company InsLocal at price Q. What is the largest Q that Andres is willing to pay to get 1 of InsLocal? (The expected value of InsLocal is the total premiums it collects minus the payments to insured homeowners in case of a tsunami). iv. Answer part iii for an insurance company that is called Ins- Global that maintain global operations. InsGlobal insures n identical houses across the globe, all in different neighborhoods outside of An- dres' neighborhood, so that the destruction of houses by tsunamis are independent events (i.e., the probability of a tsunami in one house is a independent of how many other houses have been destroyed). Discuss briefly why your answers in parts iii and iv differ. Is there an expected utility function u(x) for Andres where the answers for parts izi and iv coincide? Justify your answer. the es Andres is a homeowner with an expected utility function u(x) = 1- e-a where x is his wealth measured in million USD and u(x) satisfi expected utility hypothesis. Andres' entire wealth is his house worth 1 (million USD). However, his house can be destroyed by a tsunami that will reduce its value to 0. The probability of a tsunami destroying his house and reducing its value to 0 equals 7 (0,1). 1. Is Andres risk-averse, risk-lover or risk-neutral? ii. What is the largest premium P that Andres is willing to pay for (full insurance? iii. Suppose that a local insurance company, InsLocal, has insured n identical houses, all in the neighborhood of Andres, for a premium P per house. Suppose that the probability i represents the tsunami destroying all houses (i.e., either all houses are destroyed or none of them is destroyed). Suppose that P is small enough that Andres has fully insured his house. Having insured his house, a new business opportunity arises for Andres. He is offered to buy 1 of the insurance company InsLocal at price Q. What is the largest Q that Andres is willing to pay to get 1 of InsLocal? (The expected value of InsLocal is the total premiums it collects minus the payments to insured homeowners in case of a tsunami). iv. Answer part iii for an insurance company that is called Ins- Global that maintain global operations. InsGlobal insures n identical houses across the globe, all in different neighborhoods outside of An- dres' neighborhood, so that the destruction of houses by tsunamis are independent events (i.e., the probability of a tsunami in one house is a independent of how many other houses have been destroyed). Discuss briefly why your answers in parts iii and iv differ. Is there an expected utility function u(x) for Andres where the answers for parts izi and iv coincide? Justify your