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August 3, 2015

Homework Help: Economics

Posted by Susan on Saturday, December 5, 2009 at 6:40am.

3. Peter owns just his car and has 2,500 in cash. The car is worth 7,500. The probability that the car will be stolen (and never recovered) is 0.1. If his vNM utility function is two times the square root of his wealth, what is the maximum amount he would pay for a full-coverage insurance on his car?

(A) 975.
(B) 199.
(C) 1000.
(D) 900.
(E) 1164.

(Solution is A, 975)

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