If firms offer actuarially fair insurance, how much insurance
will a consumer demand given loss ?? with probability ??. At the
optimum, what is the marginal rate of substitution between income
in the bad state and income in the good state with respect to
probability ???
If firms offer actuarially fair insurance, how much insurance
will a consumer demand given loss L with probability p. At the
optimum, what is the marginal rate of substitution between income
in the bad state and income in the good state with respect to
probability p?
An actuarially fair insurance premium would charge more than
required to cover the expected compensation for the expenses.
A. True
B. False
C. Uncertain
In calculating insurance premiums, the actuarially fair
insurance premium is the premium that results in a zero NPV for
both the insured and the insurer. As such, the present value of the
expected loss is the actuarially fair insurance premium. Suppose
your company wants to insure a building worth $245 million. The
probability of loss is 1.25 percent in one year, and the relevant
discount rate is 4 percent.
a. What is the actuarially fair insurance premium? (Do not round...
In calculating insurance premiums, the actuarially fair
insurance premium is the premium that results in a zero NPV for
both the insured and the insurer. As such, the present value of the
expected loss is the actuarially fair insurance premium. Suppose
your company wants to insure a building worth $460 million. The
probability of loss is 1.30 percent in one year, and the relevant
discount rate is 2.1 percent.
a.
What is the actuarially fair insurance premium? (Do not
round...
In calculating insurance premiums, the actuarially fair
insurance premium is the premium that results in a zero NPV for
both the insured and the insurer. As such, the present value of the
expected loss is the actuarially fair insurance premium. Suppose
your company wants to insure a building worth $295 million. The
probability of loss is 1.28 percent in one year, and the relevant
discount rate is 3.2 percent.
a.
What is the actuarially fair insurance premium? (Enter
your...
In calculating insurance premiums, the actuarially fair
insurance premium is the premium that results in a zero NPV for
both the insured and the insurer. As such, the present value of the
expected loss is the actuarially fair insurance premium. Suppose
your company wants to insure a building worth $280 million. The
probability of loss is 1.44 percent in one year, and the relevant
discount rate is 3.6 percent.
a.
What is the actuarially fair insurance premium? (Enter
your...
) Market imperfections can raise the cost of insurance above
the actuarially fair price. Explain three frictions that may arise
between the firm and its insurer.
(b) Suppose you are the manager of an insurance company.
Describe three ways in which you can reduce the above-mentioned
frictions.