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If you are exposed to a 50/50 chance of gaining or losing $1000 and insurance

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If you are exposed to a 50/50 chance of gaining or losing $1000 and insurance that;removes the risk costs $500, at what level of wealth will you be indifferent relative to;taking the gamble or paying the insurance? That is, what is your certainty equivalent;wealth? Assume your utility function is U(W) = -W-1.

 

Paper#21607 | Written in 18-Jul-2015

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