1 answer

Question 4? Question 3= B 3. Shane just bought a house worth $360,000 in an area...

Question:

3. Shane just bought a house worth $360,000 in an area that is known for floods. A flood occurs with a 10% chance and then it

Question 4?

Question 3= B

3. Shane just bought a house worth $360,000 in an area that is known for floods. A flood occurs with a 10% chance and then it occurs, his home is reduced in value to only $202,500. What is the maximum insurance premium he would be willing to pay for flood insurance if he has a utility function given by U (I) = VI? A $0 B $17,775 © $15,750 D $7500 None of the above. 4. Using the information from the previous question, the fair insurance premium and Shane’s risk premium are approximately (where the fair insurance premium is first and risk premium second): A $20,250 and $1500 B $20,250 and $2025 $15,750 and $2025 D $15,750 and $1500 E None of the above.

Answers

3) Expected utility -0.9 x 5601503 +01 202,500 - 585 Risk premium or willingness to pay. 585 = V 360,000 - RP sovaring: (585)

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