A risk agent, whose utility is given by U(w) = 150+w and initial wealth is $10,000...
| A risk agent, whose utility is given by U(w) = 150+w and initial | |
| wealth is $10,000 is faced with a potential loss of $3,500 with a probability | |
|
of p= 0.20. Find Expected value(EV). Find Expected Utility(EW). What is the maximum premium they would be willing to pay to protect themselves against this loss? |
|
Homework Answers
![w Expected value = = = 0.88 10,000+ 0.2x 4500 8000 + 1300 19,300 ] Expected +0.2 (150 + 1500) utility (EW) song XM130 + 80, o](http://img.homeworklib.com/questions/5545de30-1841-11ec-8fa2-79357137c504.png?x-oss-process=image/resize,w_560)
Add Answer to:
A risk agent, whose utility is given by U(w) = 150+w and
initial
wealth is
$10,000...
Gamma’s utility function over wealth levels w is given by u(w) = √ w. His initial...
Gamma’s utility function over wealth levels w is given by u(w) = √ w. His initial wealth is $400. With probability π, Gamma will get into an accident that will result in a loss of $300. With probability (1 − π), Gamma does not have an accident, and hence suffers no loss. 1. Argue (mathematically) that Gamma is risk averse. 2. What is the expected value of Gamma’s loss? 3. ABC Inc. sells auto insurance. It charges a premium of...
Cindy is an expected utility maximizing consumer who has an initial wealth of $160,000 and is...
Cindy is an expected utility maximizing consumer who has an initial wealth of $160,000 and is subject to fire risk. There is a 5% chance of a major fire with a loss of $70,000 and a 5% chance of a disastrous fire with a loss of $120,000. Her utility function is U = W1/2. Cindy is offered an insurance policy costing $12,000 with a deductible provision, which requires that she pay the first $7,620 on any fire loss (that is,...
2) (20 points) Lynn has a utility function U(W) = W1/2, where W is the amount...
2) (20 points) Lynn has a utility function U(W) = W1/2, where W is the amount of wealth that she has. Lynn has two assets. She has $40,000 in a bank account, and she has a house worth $600,000, so her total wealth is initially $640,000. There is a 2% chance that her house is destroyed by a fire. a) (4 points) Considering the probability that there is a fire, what is Lynn’s Expected Wealth, E(W)? E(W) = ____________________________ b)...
The answers are 19. D 20. B 21. E Please show work Thanks Harry is risk...
The answers are
19. D
20. B
21. E
Please show work
Thanks
Harry is risk averse, with utility of wealth U(W) W2. His future wealth is random, due to the probability of 0.20 percent that he will have an accident which would reduce his wealth to $10,000. If he does not have an accident, his wealth will be $250,000. Harry's expected utility of future wealth without insurance against loss equals: a) 199.80 19. b) 288.60 c) 368.40 d) 499.20...
i) Suppose that Mary’s utility function is where W is wealth. Is she risk averse? Suppose...
i) Suppose that Mary’s utility function is where W is wealth. Is she risk averse? Suppose that Mary has initial wealth of $125,000. How much of a risk premium would she require to participate in a gamble that has a 50% probability of raising her wealth to $160,000 and a 50% probability of lowering her wealth to $90,000? ii) Suppose that Irma’s utility function with respect to wealth is U(W) = 100 + 80W − W2. Find her Arrow-Pratt risk...
2, A consumer has utility function for wealth U(W)-W, wealth W-$1,000, and faces a 50% chance...
2, A consumer has utility function for wealth U(W)-W, wealth W-$1,000, and faces a 50% chance of facing a loss of $875. The consumer's expected utility is (a) 7.5 (b) 8.0 (c) 8.5 (d) 9.0
4) Consider an agent with initial wealth W to be allocated between a safe (risk-free) asset...
4) Consider an agent with initial wealth W to be allocated between a safe (risk-free) asset and a risky asset. Let xs denote the quantity (dollars) of wealth invested in the safe asset. Let X, denote the quantity (dollars) of wealth invested in the risky asset. The safe asset has an interest rate of rs = 0. The risky asset has a probability n of earning an interest rate rr = -1 and a 1 – 1 probability of earning...
Sam's utility of wealth function is U(w) =15w. Sam owns and operates a farm. He is...
Sam's utility of wealth function is U(w) =15w. Sam owns and operates a farm. He is concerned that a flood may wipe out his crops. If there is no flood, Sam's wealth is $360,000. The probability of a flood is 1/15. If a flood does occur, Sam's wealth will fall to $160,000. a. Calculate Sam's expected utility. (please just enter the number, round to integer) b. Calculate the Sam's risk premium. (please just enter the number, round to integer)
1. Aaron has an initial wealth of $10,000. There is probability 0.02 that an accident will...
1. Aaron has an initial wealth of $10,000. There is probability 0.02 that an accident will occur, which will cause him a loss of $3,600. Aaron's utility function is ?(?) = √?. Calculate his risk premium, and compare it to the expected value of the loss.
1. Suppose that an individual has a wealth of $50,000 and the utility of U(W) =...
1. Suppose that an individual has a wealth of $50,000 and the utility of U(W) = VW. This individual has the option of investing all wealth in risky stock, which is worth $100 per share, which will be worth $105 per share in a good state with probability 1/2 and $95 per share in a bad state with probability 1/2. Assume, the interest rate is zero. (a) Find the expected value and the expected utility of investing all wealth in...
The answers are
19. D
20. B
21. E
Please show work
Thanks
Harry is risk averse, with utility of wealth U(W) W2. His future wealth is random, due to the probability of 0.20 percent that he will have an accident which would reduce his wealth to $10,000. If he does not have an accident, his wealth will be $250,000. Harry's expected utility of future wealth without insurance against loss equals: a) 199.80 19. b) 288.60 c) 368.40 d) 499.20...
2, A consumer has utility function for wealth U(W)-W, wealth W-$1,000, and faces a 50% chance of facing a loss of $875. The consumer's expected utility is (a) 7.5 (b) 8.0 (c) 8.5 (d) 9.0
4) Consider an agent with initial wealth W to be allocated between a safe (risk-free) asset and a risky asset. Let xs denote the quantity (dollars) of wealth invested in the safe asset. Let X, denote the quantity (dollars) of wealth invested in the risky asset. The safe asset has an interest rate of rs = 0. The risky asset has a probability n of earning an interest rate rr = -1 and a 1 – 1 probability of earning...
1. Suppose that an individual has a wealth of $50,000 and the utility of U(W) = VW. This individual has the option of investing all wealth in risky stock, which is worth $100 per share, which will be worth $105 per share in a good state with probability 1/2 and $95 per share in a bad state with probability 1/2. Assume, the interest rate is zero. (a) Find the expected value and the expected utility of investing all wealth in...
Most questions answered within 3 hours.
-
Paige's Properties Inc. reported 2018 net income of $2.90
million and depreciation of $269,000. Paige's Properties,...
asked 26 seconds from now -
Need help with drawing the mechanism of succinic anhydride to
succinimide via ammonia and heat. Kind...
asked 51 seconds ago -
Using loops, write a C# program that asks the user to
enter repeatedly an integer number,...
asked 5 minutes ago -
A researcher conducts an experiment comparing three treatment
conditions. The data consist of n = 34...
asked 23 minutes ago -
A generating station is producing 1.8 x 106 W of power that is
to be sent...
asked 14 minutes ago -
Consider the reaction Mg(s)+Fe2+(aq)→Mg2+(aq)+Fe(s) at 49 ∘C ,
where [Fe2+]= 3.30 M and [Mg2+]= 0.210 M...
asked 15 minutes ago -
Of men aged 65 and over 20.5% are still in the US labor force. A
random...
asked 32 minutes ago -
A bag contains 80 balls numbered 1, . . . , 80. Before the game
starts,...
asked 58 minutes ago -
2)Calculate the molar mass of an unknown gas with a mass of
0.462 grams that occupies...
asked 47 minutes ago -
The solubility of lead sulphate, PbSO4, is 4.25 x
10-3 g per 100 mL of solution....
asked 50 minutes ago -
Which one of the following aqueous solutions will have a pH of
0.00 at 25 °C?...
asked 51 minutes ago -
Suppose the market for coffee, a price-taker market and a
constant-cost industry, is initially in long-run...
asked 42 minutes ago