What is the expected value of house

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Suppose you own a house in Mobile, AL. Your house is currently worth $200,000. Suppose there is a 5% chance that a good destroys your house, in which case it will be worth $0. You have $50,000 in your bank account.

a. What is the expected value of your house?

b. You have a utility function over wealth (w) given by U(w) = p w. What is the least you would be willing to accept to sell your house?

c. Why are the answers to the above two questions different?

Reference no: EM13840422

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