Posted by **Julia** on Monday, October 6, 2008 at 3:56pm.

Suppose that your wealth is $250,000. You buy a $200,000 house and invest the remainder in a risk-free asset paying an annual interest rate of 6 percent. There is a probability of 0.001 that your house will burn to the ground and its value will be reduced to zero. With a log utility of end-of-year wealth, how much would you be willing to pay for insurance (at the beginning of the year)? Assume that if the house does not burn down, its end-of-year value still will be $200,000.

## Answer this Question

## Related Questions

- fiance - You want to create a $75,000 portfolio comprised of two stocks plus a ...
- math/stock - You want to create a $75,000 portfolio comprised of two stocks plus...
- economics - (Insurance) Let X = R+. Consider a house owner whose house has a ...
- Investing - Sonny owns $5,000 worth of High Risk Enterprises (HRE) stock. HRE ...
- Math - Sonny owns $5,000 worth of High Risk Enterprises (HRE) stock. HRE has a ...
- fiance - Sonny owns $5,000 worth of High Risk Enterprises (HRE) stock. HRE has a...
- Finance - Consider a risky portfolio. The end-of-year cash flow derived from the...
- are these correct - b. Calculate the profit or loss on 12,000 bags and on 25,000...
- math - linear programming - A woman wishes to invest $12,000 in three of bonds: ...
- Finance:capital budget - I am suppose to write a 1400 word paper based on the ...