Suppose that you have a job paying $50,000 per year. With a 5% probability, next year your

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Suppose that you have a job paying $50,000 per year. With a 5% probability, next year your wage will be reduced to $20,000 for the year.

a. What is your expected income next year?

b. Suppose that you could insure yourself against the risk of reduced consumption next year. What would the actuarially fair insurance premium be?

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Public Finance and Public Policy

ISBN: 978-1429278454

4th edition

Authors: Jonathan Gruber

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Question Posted: Apr 25, 2015 07:39 AM

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Suppose that you have a job paying $50,000 per year. With a 5% probability, next year your

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a The probability that your income next year will be 50000 is 095 the probability that your income n...View the full answer

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