The Utility fct is U = W2/3 + 1000 Flood occurs with Probabilities=1/20. The Value of house $540,000 if no flood. After a flood, the value is $40,000. Cost of insurance is 0.20 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 event. g. What is the expected profit of the insurance company? h. Calculate the coefficient of absolute risk aversion i. Calculate the coefficient of relative risk aversion

The Utility fct is U = W2/3 + 1000 Flood occurs with Probabilities=1/20. The Value of house $540,000 if no flood. After a flood, the value is $40,000. Cost of insurance is 0.20 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 event. g. What is the expected profit of the insurance company? h. Calculate the coefficient of absolute risk aversion i. Calculate the coefficient of relative risk aversion

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.5P

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