Suppose you currently have $210,000 invested in liquid assets and you want to purchase a 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?

Part B) If you are risk averse and have a power utility function (i.e., () = 11) with = 1, 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?