If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000 for an annual fire insurance policy that covers the entire loss in the event of a fire, then we know that: A.There is a one percent chance that the home will be destroyed by fire in the next year B.There is a greater than a one percent chance that the home will be destroyed by fire in the next year C.There is less than a one percent chance that the home will be destroyed by fire in the next year D.None of the above is correct

The risk averters are those individuals look forward to minimize risks. They can avoid the chances…

Answered: If a risk-averse individual owns a home…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section19.2: Managing Risk

Problem 2QQ

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If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000 for an annual fire insurance policy that covers the entire loss in the event of a fire, then we know that:

	A.	There is a one percent chance that the home will be destroyed by fire in the next year
	B.	There is a greater than a one percent chance that the home will be destroyed by fire in the next year
	C.	There is less than a one percent chance that the home will be destroyed by fire in the next year
	D.	None of the above is correct

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