Business, 02.11.2019 03:31 guazet7650

Gabriel earns $100,000 annually. he also faces a 25% chance of getting sick during any given year. if gabriel falls sick during the year, the cost to him will be $20,000. gabriel has the option of purchasing health insurance to hedge against the risk of illness. gabriel's total utility of income is given by u = ln(y). where y denotes gabriel's annual income. use this information to answer the following questions. be sure to show all your work. [it's safer to round to 4 decimal places for questions on expected utility] calculate gabriel's expected utility if he chooses not to purchase an insurance policy. calculate the actuarially fair insurance premium. calculate gabriel's expected utility if he chooses to purchase an insurance policy at the actuarially fair premium. should gabriel purchase the insurance policy? why or why not? what is the maximum premium gabriel would be willing to pay for the insurance policy? what is gabriel's risk premium?

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Gabriel earns $100,000 annually. he also faces a 25% chance of getting sick during any given year. i...