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Jules owns a Van Gogh masterpiece worth $5 million. There is a 1% chance the painting...

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Advance Math

Jules owns a Van Gogh masterpiece worth $5 million. There is a1% chance the painting will get stolen, leaving Jules withnothing.

(a) What is the expected value of this gamble?

(b) What is the minimum insurance premium an insurance companywould charge to fully insure the painting against theft?

(c) Jules's certainty equivalent for this risky situation is$4,900,000. What is the maximum insurance premium he'd be willingto pay for full insurance?

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