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Consider Brandy who has an initial wealth of $200,000. Over the next year, Brandy faces a...

Consider Brandy who has an initial wealth of $200,000. Over the next year, Brandy faces a 10% risk of getting a grave illness that will cost $100,000 to treat.

a. What is the actuarially fair price of insurance? Explain.
b. What is her expected utility without insurance if U(Wealth=100,000)=200 and U(Wealth=200,000)=340?

c. Brandy is willing to pay up to $15,000 for insurance that will cover the entire cost of care should she become ill. What does this tell you about Brandy?
d. Draw a utility of wealth curve for Brandy that is consistent with the information in parts a-c.

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