Suppose you make some income when healthy, IH = $2000, and none when sick, IS = 0, and are considering the following an insurance contract with premium, r = 540, and insurance payout when sick, q = $1800.

a. What probability of sickness would make the insurance contract actuarially fair? What would the probability of sickness need to be for the insurer to make positive profits in expectation? Explain/show your work.

b. Is this potential contract an offer of full insurance or partial insurance? Explain/show your work.

c. What is your expected income if you purchase this contract and your probability of sickness is 0.2?

d. Assume the individual’s utility over income is U(I) = √ I and has a probability of sickness, p = 0.2. Calculate your expected utility E[U(I)] (a) with the contract and (b) without the contract.

e. Is this individual risk averse? Explain. (2 points) f. Should the individual purchase this contract? Explain.

Which investment option should Wiley choose if he uses the Equally Likely (LaPlace) criterion?

Use this information to answer the following questions. Evaluate the following Payoff Table. Wiley is considering three investment options for a small inheritance that he just received-stocks, bonds and money markets. The return on his investment will depend on the performance of the economy, which can be strong, moderate or weak. The return for each possible combination is shown on the following table. *Note: the probabilities for each market condition are: Strong = P (0.2), Moderate = P (0.35) and Weak = P (.45). Assume Wiley will use only one investment option.

Table 1 below reports the present values (in £ million) of different investment projects at different interest rates in the future.

Calculate the expected present value of each project. Which projectmaximises the expected value? Why would you choose to proceed with this one?

Calculate the maximin and the maximax criteria. Calculate the minimax regret criterion. When would this criterion be applied? Calculate the expected value of perfect information. What does it describe?

Table 1 below reports the present values (in £ million) of different investment projects at different interest rates in the future.

Calculate the expected present value of each project. Which project maximises the expected value? Why would you choose to proceed with this one? Calculate the maximin and the maximax criteria. Calculate the minimax regret criterion. When would this criterion be applied? Calculate the expected value of perfect information. What does it describe?

Fluidyne Corporation manufactures and sells water filters. The economic forecasting unit of the company has supplied the following demand equation:   

QB=    2000 -     5PB +   2.5PC   +   0.82Y   + 0.6AB

          (1200)       (1.5)       (1.2)            (0.5)      (0.2)

Where,

QB=quantity sold

PB=price per unit

PC=average unit price of competitor’s product

Y=income per household

AB=advertising expenditure

            R2= 0.86

S.E.E=5

Standard error of coefficients in parentheses (1200) (1.5) (1.2,) (0.5) , ( 0.2)

Given, PB=$50,    PC=$45,      AB=$12,500      Y=$2,000

1. Does each independent variable have a significant effect on the sales of Fluidyne water filters?
2. Interpret the coefficient of variables that are significant?
3. Interpret the coefficient of determination(R²)
4. Determine the monthly quantity demanded sold (QB) for water filter?
5. Is the quantity demanded for water filter (QB) sensitive to its own price?
6. Is water filter a luxury or necessity?

Fluidyne Corporation manufactures and sells water filters. The economic forecasting unit of the company has supplied the following demand equation:   

QB=    2000 -     5PB +   2.5PC   +   0.82Y   + 0.6AB

          (1200)       (1.5)       (1.2)            (0.5)      (0.2)

Where,

QB=quantity sold

PB=price per unit

PC=average unit price of competitor’s product

Y=income per household

AB=advertising expenditure

            R2= 0.86

S.E.E=5

Standard error of coefficients in parentheses (1200) (1.5) (1.2,) (0.5) , ( 0.2)

Given, PB=$50,    PC=$45,      AB=$12,500      Y=$2,000

1. Does each independent variable have a significant effect on the sales of Fluidyne water filters?
2. Interpret the coefficient of variables that are significant?
3. Interpret the coefficient of determination(R²)
4. Determine the monthly quantity demanded sold (QB) for water filter?
5. Is the quantity demanded for water filter (QB) sensitive to its own price?
6. Is water filter a luxury or necessity?

Fluidyne Corporation manufactures and sells water filters. The economic forecasting unit of the company has supplied the following demand equation

QB=    2000 -     5PB +   2.5PC   +   0.82Y   + 0.6AB

          (1200)       (1.5)       (1.2)            (0.5)      (0.2)

Where,

QB=quantity sold

PB=price per unit

PC=average unit price of competitor’s product

Y=income per household

AB=advertising expenditure

            R2= 0.86

S.E.E=5

Standard error of coefficients in parentheses (1200) (1.5) (1.2,) (0.5) , ( 0.2)

Given, PB=$50,    PC=$45,      AB=$12,500      Y=$2,000

1. Does each independent variable have a significant effect on the sales of Fluidyne water filters?
2. Interpret the coefficient of variables that are significant?
3. Interpret the coefficient of determination(R²)
4. Determine the monthly quantity demanded sold (QB) for water filter?
5. Is the quantity demanded for water filter (QB) sensitive to its own price?
6. Is water filter a luxury or necessity?

Fluidyne Corporation manufactures and sells water filters. The economic forecasting unit of the company has supplied the following demand equation:                                      Points: 5

QB=    2000 -     5PB +   2.5PC   +   0.82Y   + 0.6AB

          (1200)       (1.5)       (1.2)            (0.5)      (0.2)

Where,

QB=quantity sold

PB=price per unit

PC=average unit price of competitor’s product

Y=income per household

AB=advertising expenditure

            R2= 0.86

S.E.E=5

Standard error of coefficients in parentheses (1200) (1.5) (1.2,) (0.5) , ( 0.2)

Given, PB=$50,    PC=$45,      AB=$12,500      Y=$2,000

1. Does each independent variable have a significant effect on the sales of Fluidyne water filters?
2. Interpret the coefficient of variables that are significant?
3. Interpret the coefficient of determination(R²)
4. Determine the monthly quantity demanded sold (QB) for water filter?
5. Is the quantity demanded for water filter (QB) sensitive to its own price?
6. Is water filter a luxury or necessity?

• Using the “Ask” as the price of the option, calculate intrinsic value and time value for each call and put option.

1. The American Heart Association is about to conduct an anti-smoking campaign and wants to know the fraction of Americans over 31 31 who smoke. In an earlier study, the population proportion was estimated to be 0.2 0.2 . How large a sample would be required in order to estimate the fraction of Americans over 31 31 who smoke at the 95% 95% confidence level with an error of at most 0.03 0.03 ? Round your answer up to the next integer.

2.

The state education commission wants to estimate the fraction of tenth grade students that have reading skills at or below the eighth grade level. In an earlier study, the population proportion was estimated to be 0.230.23.

How large a sample would be required in order to estimate the fraction of tenth graders reading at or below the eighth grade level at the 80%80% confidence level with an error of at most 0.030.03? Round your answer up to the next integer.