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Adam Has Wealth of $40,000 as Long as His Business

question 17

Multiple Choice

Adam has wealth of $40,000 as long as his business does not burn down. However, there is a 50% probability that his business will burn down, causing a loss of $30,000 and leaving him with $10,000 of wealth. Adam's utility function is given by U = W^0.5, where W is wealth. Suppose Adam purchases insurance to cover the potential $30,000 loss. If the insurance premium is actuarially fair, Adam's utility with insurance is:

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Definitions:

E-Commerce

The buying and selling of goods and services over the internet.

E-tailing

Electronic retailing or online shopping, which is the sale of goods and services through the internet.

E-procurement

Electronic procurement refers to the process of purchasing goods or services for a business using online platforms or technology.

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount to immediately generate cash.