A small businesswoman faces a 10% chance of having a fire that will reduce her...
70.2K
Verified Solution
Link Copied!
Question
Finance
A small businesswoman faces a 10% chance of having a fire that will reduce her net worth to $ 1.00, a 10% chance that fire will reduce it to $ 50,000, and an 80% chance that nothing detrimental will happen, so that her business will retain its worth of $100,000. What is the maximum amount she will pay for insurance if she has a logarithmic utility function? In other words, if U(W) = in W, compute the cost of the gamble. [Note: The insurance pays $99,999 in the first case; $50,000 in the second; and nothing in the third.]
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
