Mathematics · Risk and Insurance Calculations
A consumer has wealth W = ₹100 and faces a loss of ₹64 with probability p = 0.5. The utility function is u(W) = ln(W). (i) Calculate the maximum insurance premium the consumer will pay. (ii) Determine whether the consumer is risk-averse, risk-neutral, or risk-loving. (iii) What is the actuarially fair premium? Choose the option with all three correct answers:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Max premium = ₹40; Risk-averse; Fair premium = ₹32
- 2Max premium = ₹36.06; Risk-averse; Fair premium = ₹32✓
- 3Max premium = ₹32; Risk-averse; Fair premium = ₹32
- 4Max premium = ₹36.06; Risk-neutral; Fair premium = ₹32
Correct answer
Max premium = ₹36.06; Risk-averse; Fair premium = ₹32
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