Sam's utility of wealth function is U(w)= 15 .Sam owns and operates a farm.He is concerned that a flood may wipe out his crops.If there is no flood,Sam's wealth is $360,000.The probability of a flood is 1/15.If a flood does occur,Sam's wealth will fall to $160,000.Calculate the risk premium Sam is willing to pay for flood insurance.

Question

Sam's utility of wealth function is U(w)= 15  .Sam owns and operates a farm.He is concerned that a flood may wipe out his crops.If there is no flood,Sam's wealth is $360,000.The probability of a flood is 1/15.If a flood does occur,Sam's wealth will fall to $160,000.Calculate the risk premium Sam is willing to pay for flood insurance.

Quizplus · Accepted Answer

The Answer of Sam's utility of wealth function is U(w)= 15  .Sam owns and operates a farm.He is concerned that a flood may wipe out his crops.If there is no flood,Sam's wealth is $360,000.The probability of a flood is 1/15.If a flood does occur,Sam's wealth will fall to $160,000.Calculate the risk premium Sam is willing to pay for flood insurance.

Sam's Utility of Wealth Function Is U(w)= 15