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IgorLugansk [536]
3 years ago
14

Rosa has a 10% chance of getting sick in the next year. If she gets sick, her medical bills will amount to $500. She has a wealt

h of $1,000. Suppose she has the utility function u(x) = x0.5, where x is her net wealth at the end of the year.
(a) Calculate Rosa’s risk premium.

(b) What is the most that Rosa is willing to pay for an insurance policy that fully covers against her loss?

(c) Some insurance policies have deductibles. A deductible is an amount of a claim not covered by insurance; it’s a fixed portion of the medical bills that the insured person must pay in order to make a claim to their insurer. Suppose Rosa’s insurance company provides two plans. Plan A has zero deductibles (good!) but charges a high premium (bad!). Specifically, Plan A charges $55 for $500 of coverage. Plan B has a deductible of $K, where K<500, but charges a premium of just $(55 – .1K). Suppose K =b $300. Will Rosa purchase insurance and, if so, which plan? Show this mathematically.
Business
1 answer:
wlad13 [49]3 years ago
8 0

a) In layman's language, Risk Premium is the premium that an individual will get because of taking risks. As in this case, if Rosa is taking a risk of not getting Insured while there is a 10% chance of getting ill in the next year. If she does not get ill in the next year than what ever she saved by not paying the insurance premium is her risk premium.

If she takes a rsik of not paying the premium then she has a chance of losing out $500 & not getting anything financially from this loss while on the other side she has only 10% chance for this.

b) I think, Rosa is willing to pay $55 for her $500 coverage as if there are 10% chances of her getting ill & she is looking at the selective problems being covered in the Plan B then there is further risk enhancement that whatever problem is there with her might be or might not be covered under the insurance policy. so, It is better to go with an expensive but zero deductible plan.

c) Rosa, if takes a plan should go for Plan A which is charging $ 55 but there are zero deductible while Plan B $300 are deductibles & the charges are $ 25 (assuming what is given in the question.) for covering $ 200 (apart from the deductibles) .

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Answer:

Cash flow is important to government entities because:

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The measurable difference in the cash balance of any organization from one period to the next is referred to as Cashflow. No business or entity can continue operations if they keep taking out or spending more cash than they can make.

An administrator can plan for cash flow using a Cash Flow Planner.

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6 0
3 years ago
Under AICPA rules, which statement best describes the period of the professional engagement as it applies to a three-year engage
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4 0
2 years ago
Compensation for your employer over and above your income describes:
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The compensation that can be provided to the employer over and above employee's income could be an Insurance payment or accumulated Tax refund.

<h3>What is Insurance?</h3>

Insurance is a financial plan that promises to mitigate any loss suffers.

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A tax refund entails money return to an organization if they pay more tax than they should.

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6 0
2 years ago
How can you differentiate between various economic systems that exist
liubo4ka [24]

Answer:

An economic system is defined by the way scarce resources are distributed in an economy.

There are 4 types of major economic systems which are following;

  1. A mixed economy is an economic system, like its name is a mix of elements of planned economies, free markets with intervention of the state and public enterprises.
  2. A command economy is a system where the government is key decision maker of what goods and services will be produced and introduced by the economy.
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3 0
3 years ago
Calculate the EBIT for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, an
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Answer:

$0

Explanation:

Given that,

Total revenues = $4,000,000

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Depreciation expense = $500,000

Interest expense = $120,000

Earnings before interest and taxes (EBIT):

= Total revenues - Cost of goods sold - Depreciation expense

= $4,000,000 - $3,500,000 - $500,000

= $0

Therefore, the EBIT for a firm is $0.

8 0
2 years ago
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