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Unformatted text preview: C) stocks have less non-diversi&able risks than bonds. D) bonds are subject to more random risks than stocks. M3) The above &gure shows Bob±s utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Over and above the price of fair insurance, what is the risk premium Bob would pay to eliminate the chance of theft? A) $0 1 B) $20 C) $30 D) None of the above. M4) Many people do not fully insure against risk because A) they are risk averse. B) the insurance companies are all crooks. C) the insurance o/ered is less than fair. D) the insurance o/ered is more than fair. M5) If fair insurance is o/ered to a risk-averse person, she will A) buy enough insurance to eliminate all risk. B) not buy any insurance because it is overpriced. C) not buy any insurance since the marginal utility of the amount of the payment is positive. D) buy enough insurance to cover about half of the possible loss. 2...
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This note was uploaded on 12/10/2011 for the course ECON 401 taught by Professor Burbidge,john during the Winter '08 term at Waterloo.
- Winter '08