Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 20, Problem 13APA
To determine
Identify the expected wealth and expected utility.
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Students have asked these similar questions
Insurance
Many renters choose to have their belongings insured
against damage or theft. The amount of money people pay
to the insurance company for insurance coverage is called a
premium.
6. Moktar lives alone in a 1-bedroom basement apartment.
Last year, the insurance on his belongings was $242.
He could pay the entire premium at once, or in monthly
installments.
a) Calculate Moktar's monthly insurance premium.
b) This year, Moktar's insurance premium will increase
by 5%. Calculate his new monthly insurance premium.
5) Philippina's utility of wealth function is VW. She has stocks, bonds and cash worth
$360,000 and a house worth $280,000. There is a 1% chance of her house being
completely destroyed by fire. Unfortunately, if she has insurance, she is less responsible
and so the risk of her house being burned down rises to 2%.
a. What is the most Philippina is willing to pay for insurance?
4. You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on
how hard Ricky works, as follows.
Probabilities
Profit $10,000
Profit= $50,000
Lazy worker
40%
60%
20%
Hard worker
80%
If Ricky is lazy, he will surf the Internet all day, and he views this as a zero cost opportunity. However, Ricky would
view working hard as a "personal cost" valued at $1,000. What fixed percentage of the profits should you offer
Ricky? Assume Ricky only cares about his expected payment less any "personal cost."
Chapter 20 Solutions
Macroeconomics
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
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- 4) You are a financial professional working in a corporate loan department. A company named Mitch Hedberg Inc. (MH) comes to you for a loan. MH has debt from a previous loan (given by a different firm than yours) of 200. Your company analysts say that MH is likely to earn either 180, 240, or 300 this year - each with a probability of 1/3. MH wants you to lend them 100. MH could use this borrowed 100 to do either project X or project Y. Project X has a guaranteed return of 125 if the 100 is put there. Project Y may return either 0 or 210; each has probability of 1/2 and also costs 100 to do. a) Which project, X or Y, has the larger expected value? b) If you lend MH the 100, what will they do with the money? Why? Show your math. c) Should you lend MH the money or not? Show your math. d) Why did I choose the letters "MH" for this problem? What financial economic concept with initials "MH" is important in this problem?arrow_forward6. Jerry plans to buy a new Bluetooth headset. He knows that the same product is offered in different shops with prices of $44, $49, and $60, and with odds of one-third of finding each price. He just stopped at a shop and knows that their price is $49. If the search cost is $1 per additional search, what should Jerry do?arrow_forwardAt a military base in Texas, Corporal Stan Moneymaker has been offered a wonderful savings plan. These are the salesperson’s words: “During your 48-month tour of duty, you will invest $200 per month for the first 45 months. We will make the 46th, 47th, and 48th payments of $200 each for you. When you leave the service, we will pay you $10,000 cash.” Is this a good deal for Corporal Moneymaker? Use the IRR method in developing your answer. What assumptions are being made by Corporal Moneymaker if he enters into this contract? ( please solve the ırr method not excel solution)arrow_forward
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