Reference no: EM13183449

Consider a household that possesses $100,000 worth of values (computers, electronics, jewelry, etc). This household faces a 0.10 probability of a burglary. If a burglary were to occur, the household would have to spend $20,000 to replace the stolen items. Suppose it can buy an insurance policy for $500 that would fully reimburse it for the amount of the loss.

a) Should the household buy this insurance policy? Explain briefly.

b) Should it buy the insurance policy if it costs $1,500? $3,000? Explain briefly.

c) What is the most the household is willing to pay for this insurance policy?