Determine the value of the insurance

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John works for a manufacturing company, but he's not sure if he'll stay there given forecasts for a global recession in 2022-2023. His salary (Y) from his present position is R90,000. He has an 80% chance of keeping the job and making this money. However, there is a 20% chance that he will be fired and out of a job for a while. He will be forced to accept a lower-paying job due to the layoff. Her annual salary in this situation is R10,000.

i) Show that John`s expected value of his income is thus R74,000.

ii) John`s utility function is given by 100?? - 0.0001?? 2 ,

1) Graph the utility function

2) Determine the value of the insurance (risk premium) required to the purchase insurance policy. Please interpret the risk premium.

Reference no: EM133251911

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