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Please provide all steps. Thank you! Consider an individual who has an isoelastic utility function with =3,$350,000 in liquid financial capital and who is considering
Please provide all steps. Thank you!
Consider an individual who has an isoelastic utility function with =3,$350,000 in liquid financial capital and who is considering purchasing fire insurance (full coverage) for their home. - Price of home =$300,000. - The house burns down completely (loss of $300,000 ) with probability 0.0009. Part A What is the individual's reservation price if they choose no deductible? Part B Suppose they are offered insurance with a premium (price) of \$575 and a $50,000 deductible, would they purchase it? Part C How will the insurance premium (price charged by the insurance provider) vary with the size of the deductible? Explain by commenting on the basic factors involved in pricing insurance. (Note: This is not a trick question and should be (hopefully is) intuitive.)Step by Step Solution
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