How much would johnny be willing to pay for an insurance

Reference no: EM13198437

Assume Johnny's utility function is U (W ) = W ^a .
a. For what values of a is he risk averse, risk neutral, and risk loving? From now on, assume that a = 1/2. Johnny owns a house that would cost $100,000 to replace should it ever be destroyed by fire. There is a 0.1% chance that the house could be destroyed during the course of a year.

b. How much would fair insurance cost that completely replaces the house if destroyed by fire?

c. Assuming that Johnny has no other wealth, how much would Johnny be willing to pay for such an insurance policy?

Reference no: EM13198437

Questions Cloud

Adolescent smoker-construct of the health belief model : An adolescent smoker might think lung cancer only happened to old people. This is an example of which construct of the Health Belief Model?

Who among the three will make the investment : Barry's utility function is U(W) = W^2. Carl's utility function is U (W )= sqrt(W) . Each has wealth of only $100. An investment of that $100 has a 10% chance of netting $1,000 and a 90% chance of netting a loss of that $100.

An earth orbiting satelite has closest approach altitude : An Earth orbiting satelite has closest approach altitude of 1000km. The velocity at this point is 8km/s. Find the following elements:

Where did the idea of the modern nation-state come from : Do you know the treaties for the creation of the EU? Who was Mackinder and what did he think about world peace in the early 20th century? Where did the idea of the modern nation-state come from?

How much would johnny be willing to pay for an insurance : For what values of a is he risk averse, risk neutral, and risk loving? From now on, assume that a = 1/2. Johnny owns a house that would cost $100,000 to replace should it ever be destroyed by fire.

Hidden job market assignment : A variety of sources estimate that perhaps 85% of all job openings are not advertised online or in the newspapers. This helps lend credibility to the statement "It is not what you know but who you know". With this in mind it is necessary for job seek..

What is the largest expenditure for the us : In your own words, summarize the United States Budget. What is the largest source of revenue for the U.S. government What is the largest expenditure for the U.S. Do you think these budget priorities are correct Explain.

Identify how the process might differ from a centrally plan : Explain the process or mechanism underlying how a market-based economic system allocates scares resources. Identify how this process might differ from a centrally planned or command economy.

American politics-between 1877 and 1893 : Between 1877 and 1893, American politics

User Account

All Pages