Explanation:CASH BASED ACCOUNTING is an accounting that is considered only when the money payment is effected. It does not take in account cash which has not been received. In the financial statements it will only include cash received during the year or period under review. This makes it different from Accrual based accounting which also includes cash not yet received but are been expected.
Current consumption = 10 units of x1 and 15 units of x2
When her income doubles, with prices staying constant, Katie will consume:
= 2(2 * 10 of x1) + 15 of x2
= 40 units of x1 + 15 units of x2
Therefore, she will consume 40 units of x1 and 15 units of x2
b) The above function expresses mathematically Katie's utility to be a function of the units of x1 and x2 that she can consume, given her income constraint. If her income doubles, Katie will consume double units of x1 and the same units of x2 as she was consuming before the change in income.
The insurance company will gain an expected value $176.66032
Explanation:
The expected value is the gain or loss of an event and is calculated each outcome by its probability.
In our case we have to consider all events as follows;
The probability of dying means the insurance company will have a loss of $290,000 and gain $280 which is the cost of the policy. The probability of this happening=(1-probability of living)=(1-0.999644)=0.000356
The probability of living means the insurance company will gain $280, and the probability of this happening=0.999644
The gain or loss from death=280-290,000=-$289,720
The gain or loss from living=$280
Expected value=(The loss from death×probability of death)+(The gain from living×probability of living)
where;
The loss from death=-$290,000
Probability of death=0.000356
The gain from living=$280
Probability of living=0.999644
replacing;
Expected value=(-290,000×0.000356)+(280×0.999644)
Expected value=(-103.24+279.90032)
Expected value=$176.66032
The insurance company will gain an expected value $176.66032
