User Account

All Pages

Is the insurance contract actuarily fair

Assignment Help Business Economics
Reference no: EM131512924

Suppose the function u(x) = x0.5 where x is consumption represents your preference over gambles using an expected utility function.

You have a probability δ of getting consumption xB (bad state) and a probability 1-δ of getting xG (good state).

(a) Find the certainty equivalent xCE of the gamble.

(b) Find the risk premium of the gamble.

For (c) to (e) below, let δ = 0.1, xB = 10 and xG = 100.

An insurance company allows you to choose an insurance contract (b, p), where b is the insurance benefit the company pays you if bad state occurs and p is the insurance premium you pay the company regardless of the state.

Suppose the company's offer is p = 0.2b. You may choose any combination of (b, p).

(c) Is the insurance contract actuarily fair? How much will you insure (i.e. find your optimal p and b)?

(d) What will your consumptions be in the two states with the insurance. Are you fully insured?

(e) What is the expected profit of the insurance company from the contract?

Reference no: EM131512924

Questions Cloud

What can johnson do to set up a schedule and cost variance : Is Johnson using earned value as he was taught in his Project Management course? Explain. What can Johnson do to set up a schedule and cost variance?
Equivalence for decision maker : Suppose a decision makers utility function can be described by U(w)=w^0.5. What is this investment's certainty equivalence for this decision maker?
Describe each of the communication process elements : Describe a recent promotion experience. Describe each of the Communication Process elements to that promotion. Provide evidence by example.
Identify potential ethical and social issues : Identify potential ethical and social issues related to IT administration ethics and discuss ethical and social issues pertaining to ITsystems
Is the insurance contract actuarily fair : Is the insurance contract actuarily fair? How much will you insure (i.e. find your optimal p and b)?
The art of economic development : (1) Read Wing Thye Woo "The Art of Economic Development: Markets, Politics and Externalities", and answer the following questions:
Find the maximum average power that can be transferred : ELEC2134 Laboratory: AC Power Analysis & Fourier Analysis. In the circuit shown below, find the maximum average power that can be transferred
Pre-existing conditions : Should individuals with pre-existing conditions be able to purchase health insurance at the same cost as those without such conditions? Why or why not?
Explain the process of contingency planning : What factors are the largest contributors to flexibility? Explain each of them. Explain the process of contingency planning.

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd