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Weather Yield Price Revenue Revenue Insurance Probability Conditions (bushels/acre ($/bushel) ($/acre) Indemnity Drought (very 0.05 95 $8.00 $760 dry) 0.10 Dry 135 $6.50 $878 Flooding (very 0.05 150 $6.00 $900 wet) 0.10 Wet 190 $5.00 $950 0.5 Normal 210 $4.80 $1,008 Above 0.15 240 $4.00 $960 Average 0.05 Excellent 280 $3.50 $980

Weather Yield Price Revenue Revenue Insurance Probability Conditions (bushels/acre ($/bushel) ($/acre) Indemnity Drought (very 0.05 95 $8.00 $760 dry) 0.10 Dry 135 $6.50 $878 Flooding (very 0.05 150 $6.00 $900 wet) 0.10 Wet 190 $5.00 $950 0.5 Normal 210 $4.80 $1,008 Above 0.15 240 $4.00 $960 Average 0.05 Excellent 280 $3.50 $980

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A corn farmer has a revenue insurance policy that guarantees a revenue level of $925 per acre. The table below provides the risk profile for the farmer. Complete table below by calculating the indemnity payment for each weather condition scenario, and then calculate the fair premium for the policy. Yield Price Revenue Weather Revenue Insurance Probability Conditions (bushels/acre ($/bushel) ($/acre) Indemnity Drought (very dry) 0.05 95 $8.00 $760 0.10 Dry 135 $6.50 $878 Flooding (very 0.05 150 $6.00 $900 wet) 0.10 Wet 190 $5.00 $950 0.5 Normal 210 $4.80 $1,008 Above 0.15 240 $4.00 $960 Average 0.05 Excellent 280 $3.50 $980 Fair Premium =
Transcribed Image Text:A corn farmer has a revenue insurance policy that guarantees a revenue level of $925 per acre. The table below provides the risk profile for the farmer. Complete table below by calculating the indemnity payment for each weather condition scenario, and then calculate the fair premium for the policy. Yield Price Revenue Weather Revenue Insurance Probability Conditions (bushels/acre ($/bushel) ($/acre) Indemnity Drought (very dry) 0.05 95 $8.00 $760 0.10 Dry 135 $6.50 $878 Flooding (very 0.05 150 $6.00 $900 wet) 0.10 Wet 190 $5.00 $950 0.5 Normal 210 $4.80 $1,008 Above 0.15 240 $4.00 $960 Average 0.05 Excellent 280 $3.50 $980 Fair Premium =
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