Question
Uncertainty The Utility fct is U = W2/3 + 1000 Flood occurs with Probabilities=1/20. The Value of house $540,000 if no flood. After a flood,
- Uncertainty
The Utility fct is U = W2/3 + 1000
Flood occurs with Probabilities=1/20. The Value of house $540,000 if no flood. After a flood, the value is $40,000. Cost of insurance is 20 cents per dollar.
- a. Calculate EU
- b. Calculate EV
- c. Calculate CE
- d. Calculate RP
- e. Calculate the variance and standard deviation
- f. How much insurance should you buy? Assume your are paying premium in all event. g. What is the expected profit of the insurance company?
- h. Calculate the coefficient of absolute risk aversion i. Calculate the coefficient of relative risk aversion
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Intermediate Microeconomics and Its Application
Authors: walter nicholson, christopher snyder
11th edition
9781111784300, 324599102, 1111784302, 978-0324599107
