Citizen's insurance is thinking about increasing their retention (deductible) from $1 Billion to $2 Billion. What are possible reasons for this strategy? Select all that apply Reinsurance costs have decreased Reinsurance costs have increased They may have more capital than before They may have less capital than before

Citizen's insurance is thinking about increasing their retention (deductible) from $1 Billion to $2 Billion. What are possible reasons for this strategy? Select all that apply Reinsurance costs have decreased Reinsurance costs have increased They may have more capital than before They may have less capital than before

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 10RQ: In an insurance system, would you expect each person to receive in benefits pretty much what they...

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What are some ways a seller of labor (that is, someone looking for a job) might reassure a possible employer who is faced with imperfect information?
Questions 4 & 5 Michelle owns a house in which she keeps valuables worth 100,000 which can get stolen with probability 1%. She can purchase coverage C of the amount C ∈ [0; 100,000] at premium π = 0.05 dollars for each dollar covered. Her Bernouilli utility function is u(w) = ln(w). Assume she has no other assets. 1. Set up her maximization problem. 2. How much insurance will she choose to buy? 3. How much profits does the insurance company earn on insuring Michelle? 4. Does the fact that the insurance company earn profits mean that Michelle is worse off com-pared to the situation in which she is not insured? Explain what is happening. 5. How much insurance will she buy if insurance companies charge an actuarially fair insurance rate?
2. Consider an individual with a current wealth of $100,000 who faces the prospect of a 25% chance of losing $20,000 through theft of her car during the next year. If the person’s utility function is U(X) = ln(X), where X is wealth: a. calculate expected utility without insurance, b. calculate the actuarially fair premium for full insurance, c. calculate expected utility with full insurance at the actuarially fair premium d. calculate the maximum amount the individual would pay for full insurance.
A. From the graph below explain how an insurance plan which provides the buyer a $15,000 wealth level, regardless of any uncertain event, is a good deal for the buyer? In other words, what does the distance between points D’ and C’ represent? Note we are referring to D prime, not D. B. Considering the graph below, can you explain the difference between expected utility and certainty utility?
You are in the market for a used car. At a used carlot, you know that the Blue Book value of the car youare looking at is between $15,000 and $19,000. Ifyou believe the dealer knows as much about the caras you do, how much are you willing to pay? Why?Assume that you care only about the expected valueof the car you will buy and that the car values aresymmetrically distributed.23. Refer to Problem 22. Now you believe the dealerknows more about the car than you do. How muchare you willing to pay? Why? How can this asymmetric information problem be resolved in a competitivemarket?
First, explain the concept of risk-return trade off. How do you define return? How do you define risk? What does the trade-off says, in you own words? show the application of the risk-return trade-off for pensions choice. Does the existence of a risk-return trade-off means that all the investors select the same type of pension? show how the selection of the adequate risk-return trade-off is dependant on the investor’s risk-aversion. Detail the influence of other objective factors such as age, economic situation and personal wealth. As you can see, understanding the risk-return trade-off is essential in finance. A popular phrase in Finance is “there is no such thing as a free lunch”. Try to explain this expression based on your new understanding of the risk-return trade off. Last, reflect on how the risk-return trade-off can be applied to your own life. Identify an area in your professional life where you can apply the risk-return trade-off approach. Then find an area in your personal…
You want to buy a life insurance so that your family will receive $25,000 per year in interest. The interest rate expected from banks is 11%, while inflaation rate is expected to be 4% per year. a. What is the effective interest rate? (7.5%, 6.73%, 3.6%, or 2.75%) b. How much insurance should you buy? ($333,333, $694,444, $371,471, or $909,090) provide complete solution please
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How can moral hazard lead to more costly insurance premiums than one was expected?
To what sorts of customers would an insurance company offer a policy with a high copay? What about a high premium with a lower copay?
In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums or is it just that the average benefits paid will equal the average premiums paid?