Use the Following to Answer Question

question 164

Multiple Choice

Use the following to answer question:
-(Scenario: Choosing Insurance) Use Scenario: Choosing Insurance.For $900,the Ramirez family can buy insurance that will cover the full cost of repairs.If family members are risk-averse and maximize their expected utility,they will: Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50,000;in state 2,their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%,while the probability of no repairs is 90%.

• A)buy the insurance.
• B)be indifferent between buying and not buying the insurance since their expected income for purchasing other goods and services is $49,100,regardless of what they do.
• C)not buy the insurance,since buying it does not increase their expected income for purchasing other goods and services.
• D)self-insure.

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Definitions:

Debt Utilization Ratios

Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners’ equity.