1. Rhoda Ruyner owns a $200,000 home and has a 2% chance of experiencing a loss...
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Rhoda
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owns a $200,000
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Rhoda Ruyner owns a $200,000 home and has a 2% chance of experiencing a loss that destroys her ho...
Rhoda Ruyner owns a $200,000 home and has a 2% chance of experiencing a loss that destroys her home in any given year. Assume that only one loss per year can occur and that if a loss occurs, her home is totally destroyed. Suppose that Rhoda purchases a full insurance contract from Acme Insurance for an actuarially fair premium. This contract would pay losses due to the total destruction of Rhoda’s home. Assume that Rhoda’s contract is the only insurance...
Your utility function is given by U = , where C is consumption. You make $175,000...
Your utility function is given by U = , where C is consumption. You make $175,000 per year and enjoy jumping off bridges attached to a bungee cord. There's a 10% chance that, in the next year, you'll break both legs and will incur medical costs of $30,000 and will lose an additional $60,000 from missing work because of the loss of a working pair of legs for half the year. A.) What is your expected utility without insurance for...
Problems (see the end of each question for its respective point value) 1. Bob's utility preferences...
Problems (see the end of each question for its respective point value) 1. Bob's utility preferences with respect to wealth (W) can be described by the utility function U-0.5. Assume that Bob's current wealth level equals $400. Also assume that Bob faces a 20 percent chance of incurring a fire in the next year that would totally destroy his home (valued at $300) and an 80 percent chance of suffering no fire loss during the year. If Bob were charged...
1. Tom has an initial wealth of 100. His car may be stolen so he runs...
1. Tom has an initial wealth of 100. His car may be stolen so he runs a risk of a loss of 20 Hollars. The probability of loss ik 0.2. It is also possible that someone breaks in Tom's home. In this case, he runs a risk of a loss of (80 dollars. The probability of loss is 0.1, These two probabilities (events) are independent. It is possible, however, for Tom to buy insurance. One unit of car insurance costs...
Suppose there is a 1-in-100 chance that the Golden Gate Bridge will collapse due to a...
Suppose there is a 1-in-100 chance that the Golden Gate Bridge will collapse due to a catastrophic event in any given year. The bridge is insured for $5 billion over a 20-year policy, and in the case of collapse, your insurance company will be required to pay out that entire amount. The discount rate mandated by San Francisco agencies is 5%. 1. What is the probability that the bridge does not collapse over the insurance policy period? 2. Use expected...
UCLA WINTER 2020 Problem Set 6 Due in the beginning of class on Thursday, March 12...
UCLA WINTER 2020 Problem Set 6 Due in the beginning of class on Thursday, March 12 1. Consider a small town that has only two Sushi restaurants, A and B. Suppose that it costs $3 to make each sushi (for each store) and that the relation between sales in each month (g. measured in thousands) and price (p, measured in dollars) for each firm is 9i = 12 - P:+Pj. (a) What is each store's monthly profit as a function...
In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a...
In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a zero NPV for both the insured and the insurer. As such, the present value of the expected loss is the actuarially fair insurance premium. Suppose your company wants to insure a building worth $245 million. The probability of loss is 1.25 percent in one year, and the relevant discount rate is 4 percent. a. What is the actuarially fair insurance premium? (Do not round...
Assignment Instructions You must choose one question from Topic 1 (A or B) and one question from Topic 2 (C or D)....
Assignment Instructions You must choose one question from Topic 1 (A or B) and one question from Topic 2 (C or D). You will be answering a total of two questions for this assignment. Topic 1: Choose to answer either question 1 or 2 Topic 2: Choose to answer either question 3 or 4 TOPIC 1 Questions: 1. Assume that the chance of loss is 3 percent for two different fleets of trucks. Explain how it is possible that objective...
1. Angela spends all her income on cats (C) and artistie baby pictures (B). Cats cost...
1. Angela spends all her income on cats (C) and artistie baby pictures (B). Cats cost $20 per pound a baby pictures costs $10 per sq. ft. Assume that Angela has $300 to spend and her utility function cam be represented as U(C,B) = CSB (put B on the y-axis). A) Find the MRS and the price ratio B) Find the optimal number of cats and baby pictures for Angela to purchase. What is her utility C) If the price...
A homeowners' policy will typically pay up to $500 per plant that is damaged by a...
A homeowners' policy will typically pay up to $500 per plant that is damaged by a covered peril. This is an example of: an aggregate dollar limit an open perils dollar limit C. a specific dollar limit a mixed dollar limit none of the above e. You purchase an annuity for which you will make one payment of $15,000 on your 50 birthday. The annuity will start paying you $400 a month on your 67" birthday until you die. What...
Problems (see the end of each question for its respective point value) 1. Bob's utility preferences with respect to wealth (W) can be described by the utility function U-0.5. Assume that Bob's current wealth level equals $400. Also assume that Bob faces a 20 percent chance of incurring a fire in the next year that would totally destroy his home (valued at $300) and an 80 percent chance of suffering no fire loss during the year. If Bob were charged...
1. Tom has an initial wealth of 100. His car may be stolen so he runs a risk of a loss of 20 Hollars. The probability of loss ik 0.2. It is also possible that someone breaks in Tom's home. In this case, he runs a risk of a loss of (80 dollars. The probability of loss is 0.1, These two probabilities (events) are independent. It is possible, however, for Tom to buy insurance. One unit of car insurance costs...
UCLA WINTER 2020 Problem Set 6 Due in the beginning of class on Thursday, March 12 1. Consider a small town that has only two Sushi restaurants, A and B. Suppose that it costs $3 to make each sushi (for each store) and that the relation between sales in each month (g. measured in thousands) and price (p, measured in dollars) for each firm is 9i = 12 - P:+Pj. (a) What is each store's monthly profit as a function...
In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a zero NPV for both the insured and the insurer. As such, the present value of the expected loss is the actuarially fair insurance premium. Suppose your company wants to insure a building worth $245 million. The probability of loss is 1.25 percent in one year, and the relevant discount rate is 4 percent. a. What is the actuarially fair insurance premium? (Do not round...
Assignment Instructions You must choose one question from Topic 1 (A or B) and one question from Topic 2 (C or D). You will be answering a total of two questions for this assignment. Topic 1: Choose to answer either question 1 or 2 Topic 2: Choose to answer either question 3 or 4 TOPIC 1 Questions: 1. Assume that the chance of loss is 3 percent for two different fleets of trucks. Explain how it is possible that objective...
1. Angela spends all her income on cats (C) and artistie baby pictures (B). Cats cost $20 per pound a baby pictures costs $10 per sq. ft. Assume that Angela has $300 to spend and her utility function cam be represented as U(C,B) = CSB (put B on the y-axis). A) Find the MRS and the price ratio B) Find the optimal number of cats and baby pictures for Angela to purchase. What is her utility C) If the price...
A homeowners' policy will typically pay up to $500 per plant that is damaged by a covered peril. This is an example of: an aggregate dollar limit an open perils dollar limit C. a specific dollar limit a mixed dollar limit none of the above e. You purchase an annuity for which you will make one payment of $15,000 on your 50 birthday. The annuity will start paying you $400 a month on your 67" birthday until you die. What...
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