What is the maximum amount you would pay to eliminate a risk

Assignment Help Business Economics

Reference no: EM13976395

Suppose that you have utility in your wealth that is accurately described by this function: U = W^1/2. Further, suppose that your wealth is $1,000,000.

What is the maximum amount you would pay to eliminate a risk that, with p = 0.001, your wealth would fall to $100,000?

What is the minimum amount an insurance company would charge to assume this risk?

Reference no: EM13976395

Questions Cloud

Carbon tax could raise costs for industries : Carbon tax could raise costs for industries that consume large amounts of energy, but some sectors are better positioned to recover the cost increases than others so Could higher energy prices hurt U.S. competitiveness? what can be done about it?

Effective to tax in different rate between different states : Would it be more effective to tax in the different rate between the different states based on how much negative externality it were cause?

Interact with state programs that address carbon pollution : How can government measure how much carbon is produced and is it possible to evasion carbon tax? How should the carbon fee program interact with state programs that address carbon pollution? Can cap and trade can reduce in co2 emission in the long ru..

Factors affecting ease or difficulty of effective collusion : In which of the following industries would you expect price collusion to be easier to maintain: mobile telephone service or fast food? Use the factors affecting ease or difficulty of effective collusion to justify your answer.

What is the maximum amount you would pay to eliminate a risk : Suppose that you have utility in your wealth that is accurately described by this function: U = W^1/2. Further, suppose that your wealth is $1,000,000. What is the maximum amount you would pay to eliminate a risk that, with p = 0.001, your wealth wou..

Make monthly payments on the loan : You purchase a new house for $200,000 with a 5% down payment. You obtain a 30-year loan at 5% compounded monthly and will make monthly payments on the loan. Closing costs are $1,500. PMI is $150 per month for the first 5 years. Taxes are estimated to..

The direction of change in the spot exchange rate : Using the balance of payments of United States and Japan, forecast "the direction of change in" the spot exchange rate between Japanese yen and US dollar into the future.

Units of clothing without specialization or trade : Review the following graph. If Mexico produces 300 million tons of food, it can produce _________ million units of clothing without specialization or trade. Each ton of food in Mexico has an opportunity cost of __________ units of clothing. image Cli..

What are government outlays : In 2010 in the country of Arlandia government debt was zero. You know that the government revenue for 2011 was $344, for 2012 was $360, for 2013 was $380. The government outlays for 2011 were $197 and for 2012 were $237. If you know that government d..

User Account

All Pages