Indicate whether the statement is true, false, or unclear, and justify your answer.Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
Q: You are given the following situations: (I) A whole life insurance policy is calculated using…
A: According to 2012 data: Mortality rate of Canadian male smoker = 34.2% or 0.342 Mortality rate of…
Q: Nathan's income in a typical year is 75,000. There is a 10 percent chance that Nathan will be…
A: Nathan's Income in a typical year= 75000 Nathan's chance to fall ill= 10% Samantha's income in a…
Q: A risk averse individual prefers a certain outcome to an uncertain outcome with the same expected…
A: To find : Whether the statement is true or false.
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: In a competitive insurance market the fair premium price is equal to the expected value of the loss…
Q: Suppose the probability that Recall Scarlett is sued is .1 and her income is 1000. In the case, she…
A: Demand refers to the desire of consumers to buy goods and services at certain prices. Demand can…
Q: Indicate whether the statement is true or false, and justify your answer.Patients are charged…
A: The patients charged based on the community rated plans on their risk. Not based on the premium.
Q: Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both…
A: Hi Student, thanks for posting the question. As per the guidelines I can answer the first question.…
Q: Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the…
A: Risk-averse people will not be willing to take risks.
Q: Consider a lottery where one can either win $5,000 with a probability of 0.6 or lose $3,000 with a…
A: Risk premium refers to the amount an investor /individual is willing to pay in order to avoid the…
Q: True/False. In all cases, variable universal life insurance policies link the death benefit directly…
A: The profit from a speculation portfolio. The venture portfolio can contain a solitary resource or…
Q: Consider an insurance contract with the premium r=$200 and payout q=$800. a.) John has…
A: a. Fair contract premium can be calculated by using the following formula.
Q: Consider an economy with two agents where agents A and B where both have the same risk attitude…
A: U(x) = ln(x) State 1: Agent A earns = $3 Agent B earns = $0 State 2: Agent A earns = $0 Agent B…
Q: Compare and contrast two quantitative
A: 1)The qualitative decision making is based upon analysis of qualitative factors like organisational…
Q: Suppose in a given state's new insurance marketplace, with community rating and no restrictions on…
A: When one of the insurers is allowed to charge any premium to the people and also allowed to exclude…
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: In a competitive insurance market the fair premium price is equal to the expected value of the loss…
Q: Consider an individual whose utility function over income I is U(I), where U is increasing smoothly…
A: a. The utility function for the risk seeking person is convex. The utility function is drawn below.
Q: Indicate whether the statement is true or false, and justify your answer.In the Rothschild–Stiglitz…
A: False, an individual choose to be uninsured, if the full insurance contract lies below the…
Q: In order to remain competitive, insurance companies must successfully address: A. Adverse…
A: Adverse selection refers to th situation where one party know more information than the other party…
Q: The owner of a chain of bicycle stores are uncertain whether on of their shops is covered under…
A: In a market, producers get some security or provision from the government to protect them…
Q: Indicate whether the statement is true or false, and justify your answer.Ultimately, the market…
A: A market is a place where the buyers and sellers interact with each other and the exchange of goods…
Q: Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers…
A: Sometimes the consumer who is a risk-averse will choose full insurance to not full insurance even it…
Q: Portray a utility function for money that “explains” why a person might buy a lottery ticket (and…
A: It is implied that the utility function has to be both concave and convex for different intervals.…
Q: You are a risk-averse investor with a CRRA utility function. You are faced with the decision to…
A: Total wealth= £1000000 Returns from investing in riskless asset= 5% Risky asset which either…
Q: Individuals with initial wealth $100 and different preferences over risk are considering purchasing…
A: INTRODUCTION: PROBABILITY: Probability is a department of mathematics that offers with calculating…
Q: Indicate whether the statement is true or false, and justify your answer.A typical value function is…
A: False, because a typical value function has both the concave and convex parts.
Q: Question 2 A person has a wealth of $20,000 but faces an accident that results in a loss of S12,000…
A: Bernoulli utility is a type of utility function that shows a risk taking behavior of an individual…
Q: he transfer of Pure risk from one party to another best determines the idea of Proximate cause…
A: risk refers to the chance something harmful or unexpected would happen. the risk might involve the…
Q: Indicate whether the statement is true or false, and justify your answer.A consumer with declining…
A: Some risk averse might forgo the full insurance when it is excessively expensive.
Q: Consider an individual whose utility function over income I is U(I), where U is increasing smoothly…
A: Utility function over I is U(I), where U is increasing smoothly in I (U''>0) and convex (U">0)…
Q: Nick is risk averse and faces a financial loss of $40 with probability 0.1. If nothing happens, his…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: The ability of insurance to spread risk is limited bya. risk aversion and moral hazard.b. risk…
A: Risk spread refers to combining the risks from one or more sources. It can be attained by the…
Q: A man purchased a $22,500, 1-yr term-life insurance policy for $695. Assuming that the probability…
A: The expected return (or expected gain) on a financial investment is the expected value of its return…
Q: Consider the nation of Healthland and one of its citizens, Gary. Gary has wealth of $25, utility…
A:
Q: Abigail is a consumer whose utility is a function of her total wealth W. u(W ) = log W.…
A: Given information Utility function of Abigail u(W)=log W Initial wealth =100 Probability of…
Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…
A: Asymmetric information refers to the gap in the information available to the buyers and sellers in a…
Q: Suppose in a given state's new insurance marketplace, with community rating and no restrictions on…
A: A form of risk management that practiced by the insurance companies known as risk pool.
Q: If the insurance premium rate is 10%, the accident rate (probability of a loss) is 10%, the amount…
A: Meaning of Risk-Averse: The term risk-averse is that situation under which the investor takes…
Q: Consider the model of competitive insurance discussed in lectures (Topic 6.7). Peter is a risk…
A: Utility function can be defined as the measure for a group of goods and services preferred by…
Q: Indicate whether the statement is true or false, and justify your answer.There are no possible…
A: Answer - Need to find - Weather statement is true or false There are no possible utility functions…
Q: John wants to buy a used car. He knows that there are two types of car in the market, plums and…
A: A separating equilibrium is one where the outcomes are separated in accordance with the types of the…
Q: Consider the following information: Patients who are given Treatment A live for one year in Health…
A: Given information Treatment A Health state q=0.8 for year 1and for 2nd year health state q=0.5…
Q: Suppose that there is asymmetric information in the market for used cars. Sellers know the quality…
A: Asymmetric information refers to the situation when any of the trading partners has relatively more…
Q: Explain how risk aversion makes a market for insurance possible
A: Risk-averse individuals are those investors who fear risks or in other words who behave in a…
Q: Abigail is a consumer whose utility is a function of her total wealth W. u(W ) = log W.…
A: Given information Utility function of Abigail u(W)=log W Initial wealth =100 Probability of…
Q: You are given the following situations: (I) A whole life insurance policy is calculated using…
A: According to 2012 data: Mortality rate of Canadian male smoker = 34.2% or 0.342 Mortality rate of…
Q: Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both…
A: The total income of Tess and Lex = $40,000 The average probability that Tess and Lex experience…
Q: Albert owns a car worth MOP 50,000 which can get stolen with probability 1%. He could purchase…
A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…
Q: Required Return If the risk-free rate is 3 percent and the risk premium is 5 percent, what is the…
A: Required return can be calculated as follows: Required return=Risk free rate+Risk premium=3+5=8%
Q: Consider an individual who has a healthy state income of $10,000 and a sick state income of $2,000.…
A: People get health insurance in order to prevent themselves against the risk of getting sick by…
Q: Indicate whether the statement is true, false, or unclear, and justify your answer.A woman who uses…
A: Moral hazard can be defined as the situation in which one party who gets insured gets indulged into…
Indicate whether the statement is true, false, or unclear, and justify your answer.
Ex post risk is typically much lower than ex ante risk because uncertainty is largely eliminated by the purchase of an insurance contract.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Under symmetric information, competitive insurance markets would offer A) complete coverage to high and low risks but, respectively, with high and low premia. B) incomplete coverage to both high and low risks. C) complete coverage to high and low risks but, respectively, with low and high premia. D) complete coverage to low and incomplete coverage to high risks. E) complete coverage to high and incomplete coverage to low risks.Adverse Selection refers to a situation in insurance markets in which individuals change their behavior after obtaining coverage, resulting in increased insurance costs True or FalseSuppose that a person's utility function is the square root of wealth. Suppose the person earns $100,000 per year. He or she has an illness with a probability of 0.2, and the cost of the treatment is $30,000. Would the person pay $6,000 for insurance? Why or why not? What is the most this person would pay to be insured (hint: equate expected utility to utility with certainty)? Suppose their utility function changed to wealth squared (hint: are they now risk averse?). Would they pay $6,000 for insurance? Why or why not?
- Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows: 30% of eligible enrollees' expected health costs = $1,000 (per year)65% of eligible enrollees' expected health costs = $2,0005% of eligible enrollees' expected health costs = $10,000 Now suppose one insurer, and one insurer only, were allowed to offer any premium it wanted to any potential buyer and to exclude those it did not want to cover? What premium would they likely charge and who would they sell to and who would they exclude? What would happen to the other insurers? Does this help you see why the ACA was written to apply to all insurers?Indicate whether the statement is true or false, and justify your answer.Risk-averse consumers always prefer insurance that is actuarially fair but not full to full insurance that is actuarially unfair – but the opposite is true for risk-loving consumers.Draw a graph with utility on the Y axis and income on the X axis for a risk averse person. Label the following points on the Y axis The expected value of utility while uninsured The expected value of utility with actuarially fair, full insurance The expected value of utility with actuarially far, partial insurance
- Lucy, the manager of the medical test firm Dubrow Labs, worries about the firm being sued for botched results from blood tests. If it isn't sued, the firm expects to earn profit of $120, but if it is successfully sued, its profit will be only $20. Lucy believes that the probability of a successful suit is 20%. If fair insurance is available and Lucy is risk averse, how much insurance will she buy? Lucy will buy insurance that costs her $ when not successfully sued. (Enter your response as a whole number.)Consider an insurance company offer a "standard contract" with the premium r= $100 and payout q=$500 to anyone who will purchase it. Peter has healthy-state income IH $500 and sick-state income Is $0. He has probability of illness p=0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? (please show all your calculations)Insurance coverage has been shown to diminish the importance of time in the decision about how much medical care to seek and which providers to use. True OR False
- Consider the following example. A risk-neutral worker can choose high or low effort. The worker's outside option is 0. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm (either $100 or $200). The probability of each revenue depends on the worker's effort: Low effort: cost of effort : $0 probability of low revenue ($100): 75% probability of high revenue ($200) : 25% High effort: cost of effort : $11 probability of low revenue ($100): 25% probability of high revenue ($200) : 75% The manager offers a contract which gives the worker a flat wage of $10 and a bonus of $20 if revenue is high. Given this payment scheme, the worker will put in ✓effort. The contract (is/is not) ✓incentive compatible. The firm's expected profit is $ The firm is considering an investment that would increase worker morale. By making work more enjoyable, the program would reduce the worker's cost of effort from $11 to $9. If it costs the firm $20 to…Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may impact the perception of risk.The owner of a chain of bicycle stores are uncertain whether on of their shops is covered under their commercial general liability policy. To verify coverage, they should check which of the following policy provision? Condition Declaration other insurance insuring agreement