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4) Jack’s income is $16,900. There is a 30% chance Jack will get sick during the...

4) Jack’s income is $16,900. There is a 30% chance Jack will get sick during the next year. If Jack gets sick, he will incur a loss of $4,800. His utility function is U(I)=I0.5 (that is, utility equals the square root of Income). (4 pts)
a) What is Jack’s expected income?
b) What is Jack’s expected loss?
c) What is Jack’s expected utility?
d) What is the maximum amount of money Jack is willing to pay for insurance? What is the pure premium? What is the risk premium?
e) Show part d) using a diagram.

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