Utility of wealth function

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Sean’s utility of wealth function is U(w) = 15. Sean owns and operates a farm. He is concerned that a flood may wipe out his crops. If there is no flood, Sam's wealth is $360,000. The probability of a flood is 1/15. If a flood does occur, Sam's wealth will fall to $160,000. Calculate the amount that Sam is willing to pay for flood insurance that fully protects him against a flood.

Reference no: EM131006587

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