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Question 4 4. Suppose that you have a job paying Gh50,000 per year. With a 5% probability, next year your wage will be reduced to

Question 4

4. Suppose that you have a job paying Gh50,000 per year. With a 5% probability, next year your wage will be reduced to Gh20,000 for the year.

a. What is your expected income next year?

b. Suppose that you could insure yourself against the risk of reduced consumption next year. Determine the actuarially fair insurance premium

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