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viktelen [127]
3 years ago
10

Willy’s only source of wealth is his chocolate factory. He has the utility function p(cf)1/2 + (1 − p)(cnf)1/2,where p is the pr

obability of a flood, 1 − p is the probability of no flood, and cf and cnf are his wealth contingent on a flood and on no flood, respectively. The probability of a flood is p = 1/6. The value of Willy’s factory is $500,000 if there is no flood and $0 if there is a flood. Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $2x/17 whether there is a flood or not but he gets back $x from the company if there is a flood. Willy should buy:
a) no insurance since the cost per dollar of insurance exceeds the probability of a flood
b) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/4 of what it would be if there were no flood
c) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be the same whether there was a flood or not
d) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/3 of what it would be if there were no flood
e) enough insurance so that if there is a flood, after he collects his insurance, his wealth will be 1/5 of what it would be if there were no flood
Business
1 answer:
den301095 [7]3 years ago
4 0

Willy should buy(a) no insurance since the cost per dollar of insurance exceeds the probability of a flood

Explanation:

Willy's only source of wealth is his chocolate factory. He has the utility function  p(cf)1/2 + (1 − p)(cnf)1/2,, where p is the probability of a flood, 1 - p is the probability of no flood, and cf and in are his wealth contingent on a flood and on no flood, respectively. <u>The probability of a flood is p = 1/6. </u>The value of Willy's factory is $500,000 if there is no flood and $0 if there is a flood. Willy can buy insurance where if he buys $x worth of insurance, he must pay the insurance company $2x/17 whether there is a flood or not but he gets back $x from the company if there is a flood. Willy should buy

The answer for the above statement is option ( A.) no insurance since the cost per dollar of insurance exceeds the probability of a flood .

It is because the probability of flood as given in the question is  only 1/6, whereas the chances of no flood are 5/6. So that means that  he should not buy the insurance because the probability of the flood is comparatively less than the amount  Willy has to pay to the insurance company and  the  amount paid back to willy by the insurance company is $ x worth of insurance

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Answer:

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Explanation:

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3 years ago
Custom Foot operates six retail locations. At first glance, none looks any different from your basic old-fashioned shoe store, b
sergeinik [125]

Answer:

This is an example of mass customization

Explanation:

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8 0
3 years ago
Inputs and outputs Megan's Performance Pizza is a small restaurant in San Francisco that sells gluten-free pizzas. Megan's very
sergiy2304 [10]
<h2>In the short run, these workers are <u>variable</u> inputs, and the ovens are <u>Fixed</u> inputs.</h2>

Explanation:

By analyzing the information, we can understand that, Megan can grow slowly and steadily because the constraint here is that, Megan has so many people to work but they are students and he cannot buy more than 2 oven's at present considering his financial background and the size of the kitchen.

So the wise work is that, he keeps changing the number of workers every time but the number of oven to be used every time is only 2.

So workers are variable (changing) and ovens are fixed.

7 0
3 years ago
Sweet Sue Foods has bonds outstanding with a coupon rate of 5.44 percent paid semiannually and sell for $1,930.36. The bonds hav
tigry1 [53]

Answer:

Current yield=5.6%

Explanation:

<em>The current yield is the proportion of the current price of a bond earned as annual  interest payment.</em>

<em>Current yield = annual interest payment/bond price</em>

<em>Annual interest payment = coupon rate × face value</em>

                                          = 5.44% × $2000

                                          = $108.8

Current yield

= annual interest payment/price

= $(108.8/1,930.36) × 100

= 5.6%

Note we used the annual interest payment nothwithstanding that interests are paid semi-annually

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5 0
3 years ago
Read 2 more answers
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