How much would johnny be willing to pay for an insurance

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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

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