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You have a net worth of $913662 and a utility function given by u(w) = w0.5. If your house catches fire, a 3% likelihood of
You have a net worth of $913662 and a utility function given by u(w) = w0.5. If your house catches fire, a 3% likelihood of occurring, you expect it to be total loss and it was recently assessed at $673542. What is the risk premium ($) you'd be willing to pay for full coverage against this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 220 and recall that the risk premia is the amount you'd be willing to pay over the expected loss You have a net worth of $913662 and a utility function given by u(w) = w0.5. If your house catches fire, a 3% likelihood of occurring, you expect it to be total loss and it was recently assessed at $673542. What is the risk premium ($) you'd be willing to pay for full coverage against this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 220 and recall that the risk premia is the amount you'd be willing to pay over the expected loss
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