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Question #3: Insurance & Personal Risk Management. (8 marks) Suppose you currently have $210,000 invested in liquid assets and you want to purchase home insurance policy to cover (potential property damage. There is 10% probability of experiencing a $2,000 damage, 0.95% probability of experiencing a $15,000 damage, and 0.05% probability of experiencing a $200,000 damage. Part A) If you are risk neutral, what is the maximum insurance premium you are willing to pay (reservation price) for a plan that covers all losses with no deductible? = 1-Y w1 Part B) If you are risk averse and have a power utility function (i.e., U(W) with y = 1, what is the maximum insurance premium you are willing to pay (reservation price) for a plan that covers all losses with no deductible? Part C) If the insurance broker gives you an offer to pay $100 as insurance premium but having $3,000 deductible, would you accept the offer having the utility function as Part B? Why? If you use calculator, keep at least 5 digits after the decimal point when rounding the numbers. Question #3: Insurance & Personal Risk Management. (8 marks) Suppose you currently have $210,000 invested in liquid assets and you want to purchase home insurance policy to cover (potential property damage. There is 10% probability of experiencing a $2,000 damage, 0.95% probability of experiencing a $15,000 damage, and 0.05% probability of experiencing a $200,000 damage. Part A) If you are risk neutral, what is the maximum insurance premium you are willing to pay (reservation price) for a plan that covers all losses with no deductible? = 1-Y w1 Part B) If you are risk averse and have a power utility function (i.e., U(W) with y = 1, what is the maximum insurance premium you are willing to pay (reservation price) for a plan that covers all losses with no deductible? Part C) If the insurance broker gives you an offer to pay $100 as insurance premium but having $3,000 deductible, would you accept the offer having the utility function as Part B? Why? If you use calculator, keep at least 5 digits after the decimal point when rounding the numbers