The asset is completely destroyed

Assignment Help Finance Basics
Reference no: EM13962727

Suppose you wish to insure an asset valued at $100. Only two states of the world can occur in the future, FIRE and NO FIRE, with probabilities .25 and .75 respectively. In the FIRE state, the asset is completely destroyed. Your initial wealth (including this asset) is $120, and your utility U(W)= ln W.

A. Suppose an insurer offers to fully insure your fire risk for a premium of $25. Should you purchase this insurance policy? Why or why not?

B. If the premium for full coverage is $35, should you fully insure? Why or why not?

C. What is the maximum premium you are willing to pay to fully insure this risk? Explain how you determined the answer to this question.

Reference no: EM13962727

Questions Cloud

Rewrite the two constraints as equations : Rewrite the two constraints as equations by adding slack variables S1 and S2. Set up the initial simplex tableau for this problem.
Differentiation between foreign branching-equity investment : Discuss in scholarly detail a differentiation between foreign branching, equity investment, and wholly owned subsidiaries. In addition, what are some risks firms face with a foreign subsidiary strategy? Explain.
About sustainable-responsible sourcing and procurement : Which of the following statements about procurement is true? Which of the following statements about supply market complexity is true? Suppose you are sourcing a high risk, high profit impact item. Which of the following describes a suitable approach..
Determine optimal product mix-profit contribution : Develop the objective function and constraints required for the problem. Determine optimal product mix and profit contribution. Please note that the profit contribution per pound of $1.65 for the Regular Mix, $2.00 for the Premier Mix, and $2.25 f..
The asset is completely destroyed : Suppose you wish to insure an asset valued at $100. Only two states of the world can occur in the future, FIRE and NO FIRE, with probabilities .25 and .75 respectively. In the FIRE state, the asset is completely destroyed. Your initial wealth (includ..
Interpreting management reports-responsibility centers : Wood4Fun makes wooden playground equipment for the institutional and consumer markets. The company strives for low-cost, high-quality production because it operates in a highly competitive market in which product prices is set by the market place and..
Newly established healthcare entity promoting : Place yourself in the role of marketing director a for a newly established healthcare entity promoting a product of your choice. Develop a communications strategy for addressing target audiences during each of the stages of the DAGMAR Marketing Commu..
Projects a profit contribution : The company's accounting department projects a profit contribution of $2,400 for each EZ-Rider produced and $1,800 for each Lady-Sport produced.
Average annual cost of holding cost and fixed order cost : An automotive warehouse stocks a variety of parts that are sold at neighborhood stores. One particular part, a popular brand of oil filter, is purchased by the warehouse for $2 each. It is estimated that the cost of order processing and receipt is $1..

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the debt ratio after the change in structure

What is the market value of the firm (equity plus debt) after the change in capital structure? d. What is the debt ratio after the change in structure? e. Who (if anyone) gains or loses?

  Bender guitar corporation a manufacturer of custom electric

bender guitar corporation a manufacturer of custom electric guitars is contemplating a 1000000 investment in a new

  Chain-of-command systems

Question 1. A company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment is termed as a(n) _____. Question 2: Which of the following chain-of-command systems was ..

  Taxable gross income of a newly married couple

Harriet and Harry are married and have a total gross income of $65,000. Their allowable deduction for adjusted gross income total $1,500 and they have of $4,400 of allowable itemized deductions. What are Harriet and Harry's taxable income and inco..

  What is the objective of accounting standards

A sound foundation is necessary for success in any task from building a house to putting on make-up. In terms of U.S. Accounting Standards, it is also necessary to have a sound foundation, referred to as the conceptual framework. Let's discuss it ste..

  It will cost 60000 to implement project if required rate of

a five-year project has a projected net cash flow of 25000 35000 40000 25000 and 20000 in the next five years. it will

  Sec enforcement

What is the most recent litigation brought by SEC against public firm or against the accounting firm? What is the most recent Staff Accounting Bulletin which provides guidance to profession? What was the guidance given?

  Your finance text book sold 52000 copies in its first year

1.your finance text book sold 52000 copies in its first year. the publishing company expects the sales to grow at a

  Balance of payments

What is the Balance of Payments (BOP)? Enumerate and describe its subaccounts? How can the central bank (Fed) sterilize the domestic economy from the foreign sector? Why do they do this?

  Evaluate the effect of interest rates in foreign countries

evaluate the effect of interest rates in foreign countries and the rate of exchange with foreign currencies on

  Determine rate of return on investment

Dr Stein has just invested $6,250 for his one child. The money will be used for his son's education seventeen years from now. He computes that he will need $50,000

  What is globals share price in 2013

If Global's P/E ratio and number of shares outstanding remains unchanged, what is Global's share price in 2013?

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!

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