What is the largest premium liz would be willing to pay

Reference no: EM13218526

Liz Baylor has a $100,000 ring and keeps $100,000 cash in a checking account that pays no interest. If the ring is stolen, Liz will be forced to replace it at a cost of $100,000. The chance of this happening is 1/100. She can, however, get insurance that would completely reimburse to her the $100,000 if her ring was stolen. What is the largest premium she would be willing to pay if her U-function is : (i) U = Y1/4 (ii) U = Y4 (iii) U = Y? where Y denotes the amount of cash she has.

Reference no: EM13218526

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