Gabe Has Wealth of $100,000 and Faces a 5% Probability

question 69

Essay

Gabe has wealth of $100,000 and faces a 5% probability that he will get sick and lose $40,000.
a. What is Gabe's expected wealth?
b. What is Gabe's expected loss?
c. What price would Gabe pay for an actuarially fair insurance policy that would reimburse him the full value of his loss?
d. Suppose that Gabe's certainty equivalent is $97,000. What is Gabe's risk premium?

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Definitions:

Women's Wages

The average compensation or income earned by women for their labor or services, often discussed in the context of gender pay gap issues.

Men's Wages

The earnings received by men for their labor or services, often analyzed in comparison to women's wages for discussions on gender wage gaps.

Auto Repair

Maintenance and repair services for vehicles, often performed by mechanics in garages or workshops.

Discriminatory Wage Gap

The difference in wages earned by workers not based on skills or job type but on arbitrary factors like race, gender, or ethnicity.