-Roy owns a sports car worth $40,000, and that is his only wealth. Roy is a reckless driver, and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Roy's utility of wealth curve is shown in the figure below. An insurance company agrees to pay a car owner like Roy the full value of his car in case of an accident if the car owner buys the company's insurance policy. The company's operating expenses are $2,000 per policy.
a) What is Roy's expected wealth?
b) What is Roy's expected utility?
c) What is the maximum amount that Roy is willing to pay for car insurance?
d) What is the minimum premium that the insurance company is willing to accept?
e) Will Roy buy the insurance policy? Why or why not?

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-Roy owns a sports car worth $40,000, and that is his only wealth. Roy is a reckless driver, and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Roy's utility of wealth curve is shown in the figure below. An insurance company agrees to pay a car owner like Roy the full value of his car in case of an accident if the car owner buys the company's insurance policy. The company's operating expenses are $2,000 per policy.
a) What is Roy's expected wealth?
b) What is Roy's expected utility?
c) What is the maximum amount that Roy is willing to pay for car insurance?
d) What is the minimum premium that the insurance company is willing to accept?
e) Will Roy buy the insurance policy? Why or why not?

-Roy Owns a Sports Car Worth $40,000, and That Is