-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless 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. What is Ashton's expected wealth?
A) $30,000
B) $9,000
C) $21,000
D) zero

Question

-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless 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. What is Ashton's expected wealth?
A) $30,000 
B) $9,000 
C) $21,000 
D) zero

Quizplus · Accepted Answer

Ashton's expected wealth is calculated by considering the probability of having an accident and the value of the car. With a 30% chance of an accident, the expected wealth is 0.7 * $30,000 + 0.3 * $0 = $21,000.

-Ashton Has the Utility of Wealth Curve Shown in the Above