Questions
COMM_V 295 105 106 2025W1 Participation/Math Quiz #3
Numerical
Suppose you own a house valued at $20,000. In any given year, there is a 10% chance that a fire will completely destroy your house. To protect yourself against this risk, you purchase an insurance policy that fully compensates you in the event of a fire. The annual premium for this insurance coverage is $1,000. What is your expected wealth after purchasing the insurance?
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The problem presents a scenario with a base wealth of 20,000 and a 10% risk of total loss from fire in a given year. An insurance policy is purchased that costs 1,000 annually and pays out 20,000 if a fire occurs, otherwise paying nothing.
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