-John's Utility of Wealth Curve Is Shown in the Above

question 32

Multiple Choice

-John's utility of wealth curve is shown in the above figure. He currently has total wealth of $20,000. If there is a 50 percent chance that his $10,000 car will be stolen, what is the value of insurance against the theft?

• A) $0
• B) $5,000
• C) $7,000
• D) $13,000

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Definitions:

Expenses

Costs incurred in the operation of a business or the execution of a task.

Trust Accounts

Financial accounts held by a trustee for the benefit of a third party according to the terms of a trust agreement.

Gross Earnings

The total amount of money earned by an individual or company before any deductions such as taxes or benefits.

Income Taxes

Taxes levied by a government directly on income, both earned (salaries, wages, commissions) and unearned (dividends, interest, rents).