View the step-by-step solution to:

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

Top Answer

Attached is a detailed explanation... View the full answer

3 comments
  • how did you get there? if you don't mind
    • adamlyte
    • 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
    • academicgiant
    • Feb 26, 2018 at 9:35pm
  • 45 if from the utility table at the income of 60,000
    • academicgiant
    • Feb 26, 2018 at 9:38pm

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online