1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...

Question

Question

1) Bobs income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will incur a l

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

ors Given! Income $90,000 Probability of being sick is 24. – 0.02 On getting sick, lass- $27, 500 Utiling function VCD1° @j E

Add a comment

Answer 2

Similar Homework Help Questions

i just need help with e and f which are the diagram and whether bob would...

i just need help with e and f which are the diagram and whether bob would pay for insurance at different premiums a.) expected income is 84500 b.) expected loss is 5500 c.) expected utility is 290 and certainty equivalent is 84100 d.) max hes willing to pay $5900 pure premium: 5900 risk premium is $400 1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...
Suppose Bob has income of $50,000. There is a 10% chance that Bob will get sick ...

suppose Bob has income of $50,000. There is a 10% chance that Bob will get sick and lose half of his income. Suppose Bob’s income-utility relationship is given by the following equation, where I is Bob’s income. U(I) = Square root 21 Use the facts above to calculate the following: The premium and payout for a full and fair insurance contract. The max premium (i.e. the most Bob would ever be willing to pay for insurance)
suppose mark currently has $90,000 in wealth. Also suppose that there is a 1% chance that his...

suppose mark currently has $90,000 in wealth. Also suppose that there is a 1% chance that his house will be destroyed and cost $80,000 to repair (reducing your income to $10,000). Finally, suppose that his utility function is U = square root M , where M is income. What is the expected value of this situation? What is the expected utility? Would mark be willing to pay $500 to purchase an insurance policy that fully insures him against his loss? (Full...

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. Bob does not have insurance. When Bob is sick his income is IS=$0. When Bob...

1. Bob does not have insurance. When Bob is sick his income is IS=$0. When Bob is healthy his income is IH=$40,000. Bob’s probability of getting sick is p=0.25. a.) What is Bob’s expected income without insurance? b.) Plot Bob’s IS, IH, and E[I] in the “Utility-Income” space and in the “IS-IH” space. Label all aspects of the graphs, including the coordinates of all important points. c.) What is the slope of Bob’s Zero-Profit Line? 2. Assume Bob is offered...
Understanding demand for health insurance is a key to formulating good health policy. In this question...

Understanding demand for health insurance is a key to formulating good health policy. In this question you will model how much people are willing to pay for a health insurance plan. Here are our starting assumptions: - the consumer has an income of $49 next year - if he gets sick he will have to pay $40 for medicine - he has a 20% chance of getting sick (a) Suppose your utility function is ?(?) = √? . Calculate the...

We have seen that the assumption of preferences indicating risk aversion lead to consumers being willing...

We have seen that the assumption of preferences indicating risk aversion lead to consumers being willing to pay more than the actuarially fair price for health insurance. Darrell has a utility function for daily income given by u(I) = 10* square root of I . Thus, an income of $36 a day would give Darrell a utility of u($36) = 10* square root of 36 = 10*6 = 60. Darrell has a job that pays him $100 a day. Darrell...
Tom borrowed a USS 1,000 camera for one year There is a 5% chance that the camera will be stolen ...

Tom borrowed a USS 1,000 camera for one year There is a 5% chance that the camera will be stolen during the period. If it gets stolen, he will have to buy another one (same model, same price). He could pay USS 55 for a one-year insurance to cover theft. Tom's utility function for wealth can be modeled as u(x)-xA0.5 where x>-0. Tom's prospect theory (PT) value function can be modeled as v(x)-x"O.5 if x>=0 or as -5(-x) 0.5 if...
Please Answer all questions and sub questions in a neat and organized fashion. 1. Nadine utility...

Please Answer all questions and sub questions in a neat and organized fashion. 1. Nadine utility function is U(Y) = Y ^ (1/2), where Y is the anual income. (A.) What is Nadines total utility with a $40,000 income? (B.) Suppose there is a 20% chance that Nadine will have an injury that costs her all her income. Please calculate the EXPECTED UTILITY of income of Nadine facing this uncertainty. (C.) Following B, ( the above question) what is the...

2) (15 points) Suppose that Peter is an expected-utility maximizer who derives utility from his disposable...

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,...

1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...

Homework Answers

Add Answer to:
1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...

Post as a guest

Earn Coins

i just need help with e and f which are the diagram and whether bob would...

Suppose Bob has income of $50,000. There is a 10% chance that Bob will get sick ...

suppose mark currently has $90,000 in wealth. Also suppose that there is a 1% chance that his...

Problems (see the end of each question for its respective point value) 1. Bob's utility preferences...

1. Bob does not have insurance. When Bob is sick his income is IS=$0. When Bob...

Understanding demand for health insurance is a key to formulating good health policy. In this question...

We have seen that the assumption of preferences indicating risk aversion lead to consumers being willing...

Tom borrowed a USS 1,000 camera for one year There is a 5% chance that the camera will be stolen ...

Please Answer all questions and sub questions in a neat and organized fashion. 1. Nadine utility...

2) (15 points) Suppose that Peter is an expected-utility maximizer who derives utility from his disposable...

1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...

Homework Answers

Add Answer to: 1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...

Post as a guest

Earn Coins

Add Answer to:
1) Bob's income is $90,000. There is a 20% chance Bob will get sick during the next year. If Bob gets sick, he will...