If the probability of an injury is 0.05, the cost of the injury is $8,019, the i
ID: 3394729 • Letter: I
Question
If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost $____.
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy's expected utility if the chance of illness is 0.14%?
If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost $____.
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy's expected utility if the chance of illness is 0.14%?
Explanation / Answer
If the probability of an injury is 0.05, the cost of the injury is $8,019, the insurer’s loading costs are $3,806, and the number of policies is 283, then in a competitive insurance market, each policy will cost
283 / 3806 = 0.0743
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy's expected utility if the chance of illness is 0.14%?
285 +167 = 452 * 0.0014 =0.6328
Jimmy will have $73,084 in wealth and a utility of 285 when he is healthy and $34,627 in wealth and a utility of 167 when he is ill. What is Jimmy's expected utility if the chance of illness is 0.14%?