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AnnZ [28]
3 years ago
15

Yuri owns just one ship, he calls it Previt. The ship is worth $25 million dollars. If the ship sinks, Yuri loses $25 million. T

he probability that it will sink is .02. Yuri's total wealth, including the value of the ship is $50 million. He is an expected utility maximizer with utility U(W) equal to W2. What is the maximum amount that Yuri would be willing to pay in order to be fully insured against the risk of losing his ship
Business
1 answer:
alexandr1967 [171]3 years ago
5 0

Answer:

$745,000

Explanation:

Calculation to determine the maximum amount that Yuri would be willing to pay in order to be fully insured against the risk of losing his ship

First step is to calculate the Expected Utility (√W)

Expected Utility = (98% x √$25,000,000) + (2% x √$0)

Expected Utility = $4,900

Second step is to calculate the Fair premium of insurance policy using this formula

Fair premium of insurance policy = Probability of loss x Size of loss

Let plug in the formula

Fair premium of insurance policy = 2% x $25,000,000

Fair premium of insurance policy = $500,000

Third step is to calculate the Maximum premium using this formula

Maximum premium = Maximum utility - Expected Utility²

Let Plug in the formula

Maximum premium = $25,000,000 - $4,900²

Maximum premium = $25,000,000 - $24,010,000

Maximum premium= $990,000

Now let calculate the Maximum amount willing to pay using this formula

Maximum amount willing to pay = (Fair premium + Maximum premium) / 2

Let plug in the formula

Maximum amount willing to pay= ($ 500,000 + $990,000) / 2

Maximum amount willing to pay=$1,490,000/2

Maximum amount willing to pay= $745,000

Therefore the maximum amount that Yuri would be willing to pay in order to be fully insured against the risk of losing his ship is $745,000

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Journal Entry and their narrations is shown below:-

Explanation:

The Journal entry is shown below:-

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(Being close the revenue accounts is recorded)

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(Being close the expense accounts is recorded)

3. Retained Earnings Dr,             $49,000  

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8 0
3 years ago
Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance techni
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Profit centre

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Cooper Company has a direct materials standard of 2 gallons of input at a cost of $12.50 per gallon. During July, Cooper Company
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Answer:

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Explanation:

The computation of the material quantity variance is shown below:

Direct material quantity variance = Standard Price × (Standard Quantity - Actual Quantity)

$750 = 2 gallons × $12.50 × (6,500 gallons ÷ 2 - actual quantity)

$750 = $25  × (6,500 gallons ÷ 2 - actual quantity)

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