Diego's current wealth is $800, but there is a 0.2 probability that he will lose $100. Diego is risk neutral. He is offered an insurance policy that will fully insure his loss. How much would he be willing to pay for this policy?

Diego's current wealth is $800, but there is a 0.2 probability that he will lose $100. Diego is risk neutral. He is offered an insurance policy that will fully insure his loss. How much would he be willing to pay for this policy?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section19.2: Managing Risk

Problem 2QQ

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Diego's current wealth is $800, but there is a 0.2 probability that he will lose $100.
Diego is risk neutral. He is offered an insurance policy that will fully insure his loss. How
much would he be willing to pay for this policy?

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