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# Suppose Terri has a 25% chance of becoming disabled in any given year. If she does become disabled, she will earn \$0. If Terri does not become...

Suppose Terri has a​ 25% chance of becoming disabled in any given year. If she does become​ disabled, she will earn​ \$0. If Terri does not become​ disabled, she will earn her usual salary of​ \$80,000. Terri has the opportunity to purchase disability insurance for​ \$20,000 which will pay her her full salary in the event she becomes disabled.​ Terri's utility with the policy is​ _____ and her expected utility without the policy is​ _____.

A.

​45; 56.25

B.

​18.75; 37.5

C.

​45; 18.75

D.

​56.25; 45

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• how did you get there? if you don't mind
• Feb 26, 2018 at 9:32pm
• ncome after policy = 80000-20000 = \$ 60000 utility with the policy = 45 income without policy = 80000 expected utility = 0.25*0 + 0.75*75 = 56.25
• Feb 26, 2018 at 9:35pm
• 45 if from the utility table at the income of 60,000
• Feb 26, 2018 at 9:38pm

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