-Bruce Copperwood's utility of wealth curve is illustrated in the above figure. Bruce is presently employed at a salary of $100,000. There is a 10 percent probability that Bruce will be totally disabled, in which case he will have no wealth. An insurance company (with no operating expenses) would be willing to offer Bruce a disability insurance policy paying $100,000 in the case of total disability for a minimum premium of
A) $1,000.
B) $10,000.
C) $20,000.
D) $90,000.

Question

-Bruce Copperwood's utility of wealth curve is illustrated in the above figure. Bruce is presently employed at a salary of $100,000. There is a 10 percent probability that Bruce will be totally disabled, in which case he will have no wealth. An insurance company (with no operating expenses) would be willing to offer Bruce a disability insurance policy paying $100,000 in the case of total disability for a minimum premium of
A) $1,000. 
B) $10,000. 
C) $20,000. 
D) $90,000.

Quizplus · Accepted Answer

The minimum premium is the expected loss, which is 10% of $100,000, equaling $10,000.

-Bruce Copperwood's Utility of Wealth Curve Is Illustrated in the Above