Utility function and total wealth

Assignment Help Macroeconomics

Reference no: EM1312776

Let's say you have a total wealth (W) of $100,000, which includes a car worth $20,000. The probability of losing your car (over one year) is 25%. Your utility function is U(W) = ln(W).

(a) What is your expected wealth for the next year?

(b) What is your expected utility for the next year?

(d) What is your expected utility if you pay the AFP for full coverage (b = $20,000)?

(e) What is the maximum premium you are willing to pay?

What is the amount of the difference between the maximum premium and AFP, and what is this called?

Reference no: EM1312776

Questions Cloud

Questions on annual compounding : Multiple choice questions on annual compounding - The terminal value at the end of the 16 year period is closest.

Explain capital budgeting techniques for supernormal growth : Explain Capital Budgeting Techniques for Supernormal Growth and Dividends are expected to grow at a 25 percent rate for the next 3 years and with growth rate falling off to a constant 8 percent thereafter

Paired and unpaired samples t-test : Perform a proper analysis. Describe your null and alternative hypothesis, report the p-value. What is your conclusion?

Motion in two dimensions : A Volleyball is spiked so that it has an initial velocity of 15 m/s directed downward at an angle of 55 degrees below the horizontal. Find the horizontal component of the ball’s velocity when the opposing player fields the ball?

Utility function and total wealth : What is the amount of the difference between the maximum premium and AFP, and what is this called?

How to finding npv and irr from the given data : How to Finding NPV and IRR from the given data of the Anderson International Limited is evaluating a project in Erewhon

Prepare a statement of cash flows for the month of january : Preparation of statement of cash flow statement using direct method - Prepare a statement of cash flows for the month of January 2007. Use good form and the direct format.

Computation of expected utility from health insurance : hat is your expected utility without insurance? Suppose you can buy insurance that will cover the medical expenses but not the foregone part of your salary. How much is an actuarially fair policy, and what is your expected utility if you buy it?

Estimating the p-value and power value : The main purpose of this exercise is to check your understanding of significance level, p-values and power .

User Account

All Pages