You have a net worth of $981251 and a utility function given by u(w) = w0.5. If your house catches fire, a 2% likelihood

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You Have A Net Worth Of 981251 And A Utility Function Given By U W W0 5 If Your House Catches Fire A 2 Likelihood 1 (20.61 KiB) Viewed 30 times

You have a net worth of $981251 and a utility function given by u(w) = w0.5. If your house catches fire, a 2% likelihood of occurring, you expect it to be total loss and it was recently assessed at $703222. What is the risk premium ($) you'd be willing to pay for full coverage against this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 220 and recall that the risk premia is the amount you'd be willing to pay over the expected loss