What is the expected loss and what is the risk premium

Assignment Help Business Economics

Reference no: EM131096809

Suppose an individual has the following utility function defined over wealth: U = U(√wealth). The individual has an initial wealth level of $20,000.

A new drug has been developed that is effective in preventing heart attacks. Taking the drug reduces the chance of a heart attack to 10%, but the loss associated with the attack increases to $10,000.

a) What is the expected loss?

b) What is the maximum amount this individual is willing to pay for insurance against a heart attack?

c) What is the risk premium?

Reference no: EM131096809

Questions Cloud

Purpose of the promotion : What's the purpose of the promotion? What's your target market? What's the best way to reach that target market?

Nation of upstandia uses kroner for money and its tax code : The nation of Upstandia uses kroner for money and its tax code is such that a person making 100,000 kroner per year pays 40,000 kroner per year in income taxes; a person making 200,000 kroner per year pays 70,000 kroner per year in income taxes;

Challenges in utilization management : Explain how utilization management may change in the future. Answer the following questions in your response. The response should be 300-500 words with at least one APA citation.

Indicative of bubble in the higher education market : Paul Schumer and Jim Miller, two analyst at a research institute, discuss the rising costs of higher education in their country. Paul feels that escalating tuition fees in colleges and universities are indicative of a bubble in the higher education m..

What is the expected loss and what is the risk premium : Suppose an individual has the following utility function defined over wealth: U = U(√wealth). The individual has an initial wealth level of $20,000. What is the expected loss? What is the maximum amount this individual is willing to pay for insurance..

Content and language differ between the two sites : Compare the company's social networking site with its official website. How does the content and language differ between the two sites?

Mastery of the course competencies : How are you intentionally constructing and co-constructing your world, yourself, and your power in ways that can evolve practice in new or improved ways based on mastery of the course competencies?

Should it be the scanner or the parser : Each has an opportunity to do so. Is there an interaction between this issue, declare before- use rules, and disambiguation of subscripts from function calls in a language with the Fortran 77 ambiguity?

International trade and investment : Explain the main sources of finance for international trade and investment.

User Account

All Pages