Omar has just landed a great job and plans to buy a fancy car worth $100,000. Although Omar is generally risk averse, he likes to drive fast. Assume that the probability that he will wreck the car (a total loss of $100,000) is 0.1 and that the probability that he will have no accidents is 0.9. How much would Omar pay for a fair insurance policy that would completely replace his car in the event of a wreck? What is the most he would pay for an insurance policy that would completely replace his car if he totaled it?
Correct Answer:
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