Answer to Question #65972 in Microeconomics for ito
Sita expects her future earnings to be worth rs. 100. If she falls ill, her expected future earning will be rs 25. There is a belief that she may fall ill with probability of 2/3 while the probability of remaining in good health is 1/3 . Let her utility function be given as U(y)=Y1/2. Suppose that an insurance company offers to fully insure sita against loss of earnings caused by illness against an actuarially fair premium.
(a) Will sita accepts the insurance. Explain.
(b) What is the maximum amount that sita would pay for the insurance?
Future earnings - Rs. 100, p = 1/3 If she falls ill - Rs. 25, p = 2/3 U(y) =y1/2
(a) Sita may accept the insurance, if the probability of illness is too high and the insurance payment is affordable. As p = 2/3, Sita will accept the insurance. (b) The maximum amount that Sita would pay for the insurance can be calculated according to probabilities: i(max) = 100*1/3 + 25*2/3 = 33.33 + 16.67 = 50
College and University is a time in your life when you find your passions and your interests and you study…
APPROVED BY CLIENTS
Hi, everything went well. I received my assignment before the due date but I got a score of 85% because it didn't pass all the test cases. I just wish the expert spend a little more time debugging and checking for the correct output.