A risk-averse individual experiences an adverse event with probability of 2% (0.02) that costs $1000. How much insurance coverage will the individual purchase if premiums are actuarily fair? a-some amount more than $1000 b-$1000 c-$0 d-some amount greater than $0, but less than $1000
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- Risk difference may sometimes be referred to as excess risk. True FalseWhich of the followig is not one of the purposes of having a deductible in insurance contract: A) Reduce incidents of adverse selection B) Reduce moral and morale hazard C) Reduce premiums paid by the insured D) Eliminate small claims that are expensive to handle and processthe probability of reaching the wrong conclusion to 0.05 the probability of a Type II error equal to 0.05 the probability of reaching the correct conclusion equal to 0.05 the probability of a Type I error equal to 0.05 attached in ss below thanks
- Can you answer part A and B please? I do not understand them. Thank you so much :) Part A. Suppose Rock earns $100,000 if he is healthy, and $80,000 if he falls ill. Suppose further that he has a 0.25% chance of falling ill. If Rock were to purchase full insurance, the payout would be equal to ____. The actuarially fair premium for this payout would be equal to ____. $100,000; $250 $50; $20,000 $70,000; $350 $20,000; $50 $350; $70,000 PART B: Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income) �=������ Malik's utility if he earns $100,000 is ____ and his utility if he earns $500,000 is ____. Suppose that there is a 20% chance Malik is injured and earns $100,000, and an 80% chance he stays healthy and will earn $500,000. Suppose further that his utility function is the…You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000.Uncertainty The Utility function is U = W1/3Flood occurs with Probabilities=1/25. The Value of a house is $450,000 if no flood. Aftera flood, the value is $50,000. Cost of insurance is 10 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 events.g. What is the expected profit of the insurance company? h. Calculate the coefficient of absolute and relative risk aversion
- Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with £20000£20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y)u(y)=ln(y) and they have no other assets. Q2) Consider the setup from Question 1. A risk-neutral insurance company is willing to insure the car at the premium of π=£2/3π=£2/3 for every one pound of coverage. Q3) Consider the setup from Questions 1 and 2. How much profits, in expectation, does the insurance company earn on insuring the individual?A plaintiff believes that there is a 30% chance that he will winIf he wins, he will gain $50,000. It costs him $5000 in non‐recoverable litigation costs to take the case to court. If the plaintiff is risk‐neutral, which of the following is true? A) The plaintiff will take the case to court with an expected net‐gain of $10,000 B) The plaintiff will take the case to court with an expected net‐gain of $15,000 C) The plaintiff will not take the case to court because he is afraid of losing. D) None of the aboveWhat is the true cost of going to the doctor? options: The amount you pay minus the amount your insurance covers (i.e. the amount you pay out of pocket) The amount you pay out of pocket, plus the worth of the time you lose while waiting, plus the travel cost, plus the increased risk of being infected with Covid-19 while at the doctor's office There is no cost if your insurance is good enough. The amount you pay
- PROBLEM (4) A homeowner with expected utility preferences with u(x)= sqare root x owns a house worth $490k. There is a probability p that she will experience a house fire, in which case the damages will cost $240k. A risk-neutral insurance company asks for an insurance premium of $10k in return for covering the damages fully in case of a fire. (a) What should p be so that the homeowner is willing to insure her house? (b) What should p be so that the insurance company is willing to offer insurance?The owner of a chain of bicycle stores are uncertain whether on of their shops is covered under their commercial general liability policy. To verify coverage, they should check which of the following policy provision? Condition Declaration other insurance insuring agreementEconomics A group of 20,000 households in one neighborhood was covered in fire insurance that estimates a 2% probability of loss. Assuming that in the same neighborhood, the actual number of houses gutted by fire within one coverage cycle is 350 to 450. Requirements; a. Compute for the expected value of the loss.