If a risk‐averse individual owns a home worth $100,000, and that individual iswilling to pay a maximum of $1,000 for an annual fire insurance policy that covers theentire loss in the event of a fire, then we know that:A. There is a one percent chance that the home will be destroyed by fire inthe next yearB. There is a greater than a one percent chance that the home will bedestroyed by fire in the next yearC. There is less than a one percent chance that the home will be destroyedby fire in the next yearD. None of the above is correct
If a risk‐averse individual owns a home worth $100,000, and that individual iswilling to pay a maximum of $1,000 for an annual fire insurance policy that covers theentire loss in the event of a fire, then we know that:A. There is a one percent chance that the home will be destroyed by fire inthe next yearB. There is a greater than a one percent chance that the home will bedestroyed by fire in the next yearC. There is less than a one percent chance that the home will be destroyedby fire in the next yearD. None of the above is correct
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.7P
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If a risk‐averse individual owns a home worth $100,000, and that individual is
willing to pay a maximum of $1,000 for an annual fire insurance policy that covers the
entire loss in the event of a fire, then we know that:
A. There is a one percent chance that the home will be destroyed by fire in
the next year
B. There is a greater than a one percent chance that the home will be
destroyed by fire in the next year
C. There is less than a one percent chance that the home will be destroyed
by fire in the next year
D. None of the above is correct
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