Question
In: Finance
A risk neutral agent is indifferent between two insurance products if both are actuarially fair.
A risk neutral agent is indifferent between two insurance products if both are actuarially fair.
Solutions
Expert Solution
True. A risk neutral agent will be indifferent because he will can either pay the premium for the products or face the expected loss in absence of the products since the products are actuarially fair the expected value to be spent is the same in all the cases. A risk averse person would buy the product with the higher premium since it would also have a higher coverage while a risk loving agent will prefer the one with the lowest premium if he at all purchases an insurance.
jeff jeffy answered 2 years agoRelated Solutions
In calculating insurance premiums, the actuarially fair insurance premium is the premium that results in a...
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...
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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...
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...
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...
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If firms offer actuarially fair insurance, how much insurance
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optimum, what is the marginal rate of substitution between income
in the bad state and income in the good state with respect to
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Describe the necessary conditions necessary required for firms to offer actuarially fair insurance.
Describe the necessary conditions necessary required for firms
to offer actuarially fair insurance.
Describe the necessary conditions necessary required for firms to offer actuarially fair insurance.
Describe the necessary conditions necessary required for firms
to offer actuarially fair insurance.
If firms offer actuarially fair insurance, how much insurance will a consumer demand given loss L...
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?
Most people purchase insurance because they are _____. risk-tolerant risk-averse risk-return risk indifferent
Most people purchase insurance because they are _____.
risk-tolerant
risk-averse
risk-return
risk indifferent
An actuarially fair insurance premium would charge more than required to cover the expected compensation for...
An actuarially fair insurance premium would charge more than
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A. True
B. False
C. Uncertain
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