Mathematics, 21.02.2020 18:29, esanchez2002fcb

Nsurance – Suppose that your wealth is $10,000. Out of $10,000, $1000 is the value of your house. The probability that your house will be on fire is 10%, and you lost all the value of your house if it catches fire. a. Define the gamble b. Calculate the expected value of the gamble c. Now, suppose your utility function is = W1/2 . Calculate the Certainty Equivalent and the maximum willingness to pay for the insurance premium. d. Without calculating all the math again, what happens to the maximum willingness to pay for insurance premium if the probability of your house will be burned increase to 20%?

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Nsurance – Suppose that your wealth is $10,000. Out of $10,000, $1000 is the value of your house. Th...