Function for total asset position

Reference no: EM1390159

Pierre has a utility function for total asset position of u(x)=ln(x), His assets currently consist of $50,000 in cash and a rare violin he inherited from a rich uncle which is valued at $100,000. He is debating whether to buy insurance for the violin at an annual premium Pr. There is a 1% chance that his violin will be lost, damaged or stolen during a given year.

i) Find the annual premium p at which he will be indifferent between buying the insurance or not.

ii) The insurance company is offering a new scheme called probabilistic insurance. Under the terms of this scheme Pierre will pay a premium of Pr/2where Pr is the amount you found in part i). In the event of a claim the insurance company will toss a fair coin. If the coin lands showing a head Pierre will pay the other half of the premium and be insured for the claim. If the coin lands showing a tail his Pr/2 payment will be returned and he will not be insured for the claim. Draw a decision tree for this problem using the Pr value found in part i). Should Pierre buy the probabilistic insurance?

Reference no: EM1390159

Questions Cloud

The price for the superior v has been slightly higher : In the past, the price for the Superior V has been slightly higher than similar products offered by competitors. Why would a company use this strategy

Frequency distributions in business world : Why is it significant to be familiar with frequency distributions in the business world? Provide examples by using a distribution chart from a set of data.

Showing the two conditional distributions : Which conditional distributions do these statistics refer to, those of y at given catagories of x, or those of x at given categories of y? Set up a table with race of murderers as rows and race of victims as columns, showing the two conditional di..

Sexual orienation isprotected by the eeoc : which of the following statement corcern sexual orienation is true/ 1.sexual orienation isprotected by the eeoc/

Function for total asset position : Pierre has a utility function for total asset position of u(x)=ln(x), His assets currently consist of $50,000 in cash and a rare violin he inherited from a rich uncle which is valued at $100,000.

The service level is the probability that the amount : The service level is the probability that the amount of inventory on hand during the lead time is sufficient to meet expected demand.

The firm has no other non-operating assets : The firm has no other non-operating assets. It has $368 million in debt and $60 million in preferred stock. What is the value of the firmas operations?

Determine the genotype frequencies for each gene : In humans the presence of chin and cheek dimples is dominant to absence of dimples, and ability to taste the compound PTC is dominant to the inability to taste the compound.

Production is not the best choice for high volume repeitive : Lead production is not the best choice for high Volume repeitive items where mass production is more common

User Account

All Pages