RISK-INSURANCE premium

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RISK-INSURANCE premium

SoniaKapoor
Ali has an initial wealth of 100000 and a utility function U(w)=w^.5.He faces a loss of 100000 with probability 1%.What is the maximum insurance premiumhe will be prepared to pay to guard against the loss?


MA Economics
DSE
2014-16
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Re: RISK-INSURANCE premium

Amit Goyal
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Let P denotes the premium. P solves the following:
.99[(100000)^.5] = (100000-P)^.5
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Re: RISK-INSURANCE premium

SoniaKapoor
Thanku Sir
MA Economics
DSE
2014-16