Compute the insurance amount against losses

Assignment Help Macroeconomics

Reference no: EM1312250

1. Suppose a risk-averse consumer has an initial wealth of $5,000 and a utility function U(M) √M.. He faces an 80 percent chance of losing $4000, and a 20 percent chance of losing $0. What is the most a consumer would pay for insurance against these losses? Draw a diagram to illustrate this amount.

2. Suppose a risk-averse consumer has an initial wealth of $7,000 and a utility function U(M) = InM. He faces a 70 percent chance of losing $4000, and a 30 percent chance of losing $6,000. What is the most a consumer would pay for insurance against these losses? Draw a diagram to illustrate this amount.

Reference no: EM1312250

Questions Cloud

Determine the internal rate of return : Determine the internal rate of return (IRR) of the Powerball deal in question and Calculation of NPV andIRR on a project

Member of the commonwealth of independent states : Which former Soviet republic currently a member of the Commonwealth of Independent States (CIS) has been the most economically successful in making this transition.

Determine the present value at 18 percent : If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?

Computing probability values using binomial distribution : What is the probability that at least one of the new books is a commercial success?

Compute the insurance amount against losses : Suppose a risk-averse consumer has an initial wealth of $5,000 and a utility function U(M) √M.. He faces an 80 percent chance of losing $4000, and a 20 percent chance of losing $0.

Computing mean crash damages for vehicles : Five test vehicles of each kind were crashed, with results given below. Research question: Are mean crash damages the same for these 3 vehicles?

Describing the importance of the concept of present value : Describing the importance of the concept of present value therefore important for corporate finance and is often the very first topic taught in any finance class.

Elasticity of demand for bottom feeder tacos : Illustrate what is the effect of the price increase on revenue at the YSU campus store. Calculate the price elasticity of demand for Bottom Feeder Tacos using the mid-point formula.

Calculations and what effective annual interest rate : How much will the student pay each month for 48 months? Show calculations and What effective annual interest rate is being charged? Show calculations.

User Account

All Pages