Uncertainty

Uncertainty (40 points) The Utility function is U = W1/2 Flood occurs with Probabilities=1/15. The Value of a house is $400,000 if no flood. After a flood, the value is $40,000. Cost of insurance is 10 cents per dollar. a. Calculate EU (5 points) b. Calculate EV (5 points) c. Calculate CE (5 points) d. Calculate RP (5 points) e. Calculate the variance and standard deviation (5 points) f. How much insurance should you buy? Assume your are paying premium in all events. 5 points) g. What is the expected profit of the insurance company? (5 points) h. Calculate the coefficient of absolute and relative risk aversion (5 points)