utility function
Ivan owns a car that worth RM100,000 with a utility function of U(x) = ln(x). He is facing a potential risk where the car might get stolen at the probability of 30%. An insurance company offers him an insurance option: he will get RMQ if the car is stolen with an insurance premium of 0.3Q.
If Ivan is an expected utility maximiser, estimate the amount of insurance (Q) that he will buy.
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2) (15 points) Suppose that Peter is an expected-utility maximizer who derives utility from his disposable income according to the function: U(I) = V1001, where I, measured in US dollars, represents his disposable income. Currently, Peter's disposable income is $90,000. There is a 1% chance that his Audi will be stolen. If this happens, his disposable income will be reduced to $10,000, since he will be spending $80,000 getting a new car. a) If Peter does not purchase auto insurance,...
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Consider the utility function of an individual given by u(x) - ln(x - 10, 000). His total wealth is $270,000 of which S170,000 is the worth of his house. There is 10% probability that his house may be destroyed by fire. (a) What is the risk attitude of this person? (10%) (b) Calculate the insurance premium. fair premium and risk premium. (1596) (c) What is the relationship between the insurance premium, fair premium, and 2.
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to the company oficer of an A consumer with| VN-M utility function U(x) = log(x) and initial wealth W =$500,000 faces a probability p = 0.2 of incurring a monetary loss of d =$200,000 in an accident. An insurance company offers him insurance at a price r for each dollar of coverage. That is, if he wants to get back r dollars in case of an accident, he must pay rr dollars for insurance to the company up front. (a)...
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