-Van, Whose Utility of Wealth Curve Is Shown in the Above

question 116

Multiple Choice

-Van, whose utility of wealth curve is shown in the above figure, owns a home that is valued at $100,000. Initially there is a 10 percent chance that the house will be destroyed by hurricane. As the risk of destruction due to hurricane rises from 10 percent to 20 percent, the minimum cost of insurance

• A) stays the same.
• B) increases by $10,000.
• C) increases by $20,000.
• D) increases by $30,000.

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Definitions:

Investing Activity

Operations concerning the buying and selling of long-term assets and other financial investments that do not qualify as cash equivalents.

Suppliers

Entities or individuals that provide goods or services to another entity or individual, usually in a business-to-business context.

Time Period Assumption

An accounting principle that the life of a business can be divided into discrete time periods, such as months and years, for reporting purposes.

Operating Cycle

The duration of time it takes for a company to purchase inventory, sell the goods, and collect cash from the sale.