Question 1
Refer to the data provided in Table 17.4 below to answer the following question(s). The table shows the relationship between income and utility for Celeste.
Refer to Table 17.4. From the table, we can see that Celeste is
◦ risk-averse.
◦ risk-loving.
◦ risk-neutral.
◦ We cannot determine Celeste's attitude toward risk from the table.
Question 2
Refer to the data provided in Table 17.4 below to answer the following question(s). The table shows the relationship between income and utility for Celeste.
Refer to Table 17.4. Suppose Celeste has a 1/3 chance of becoming disabled in any given year. If she does become disabled, she will earn $0. If Celeste does not become disabled, she will earn her usual salary of $120,000. Celeste has the opportunity to purchase disability insurance which will pay her her full salary in the event she becomes disabled. On average, such a contract would cost the insurance company ________ per insured person.
◦ $40,000
◦ $60,000
◦ $80,000
◦ $120,000
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