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  1. business
  2. accounting
  3. b) laura's utility-of-wealth function is u(w) = 1

b) Laura's utility-of-wealth function is u(w) = 1 - w Her current wealth is 100....

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Accounting

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b) Laura's utility-of-wealth function is u(w) = 1 - w Her current wealth is 100. There is a probability of 0.2 that 60 of her wealth will be destroyed in an accident. Insurance can be purchased for 0.40 pounds per pound of coverage. Derive the market opportunity line. Does it represent fair odds? Explain. How much insurance coverage will Laura purchase? What will Laura's wealth be if she has an accident, and what wealth will she have if she does not have an accident? Is Laura fully insured? Explain. If not, derive the price per pound of coverage that assures that aura is fully insured. [33%) b) Laura's utility-of-wealth function is u(w) = 1 - w Her current wealth is 100. There is a probability of 0.2 that 60 of her wealth will be destroyed in an accident. Insurance can be purchased for 0.40 pounds per pound of coverage. Derive the market opportunity line. Does it represent fair odds? Explain. How much insurance coverage will Laura purchase? What will Laura's wealth be if she has an accident, and what wealth will she have if she does not have an accident? Is Laura fully insured? Explain. If not, derive the price per pound of coverage that assures that aura is fully insured. [33%)

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