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Your utility is the square root of income measured in thousands of dollars. You have annual income of $100, 000, but have a 1% chance

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Your utility is the square root of income measured in thousands of dollars. You have annual income of $100, 000, but have a 1% chance each year of losing it all. Going uninsured is a gamble. What is your expected utility without insurance? What is the certainty-equivalent of this gamble? If you could buy full insurance for the actuarially fair premium**, by how much would your utility increase? What is the maximum premium you would be willing to pay for full insurance? Explain. An insurance company insuring a large number of people just like you, but with the risks of loss independent across the population, would face non-claims costs of $500 per person. If there is competition among such companies, what premium would you be charged? Why? Would you buy insurance at this premium? Explain

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