​Scatterbrain Samantha Often Forgets to Lock Her House

question 62

Multiple Choice

​Scatterbrain Samantha often forgets to lock her house.This has caused the probability of a burglary to be 30%.If her house gets broken into,she faces a property loss of $10,000,otherwise she gets to keep her $100,000.If Samantha is offered a full coverage insurance policy for her house at $2000,would she buy the insurance?

• A)​Yes because she gets to now enjoy her wealth risk-free
• B)No,because she can take the risk and be better off
• C)Yes,because she gains on average with the insurance
• D)​Both A&C

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Definitions:

Student Loans

Borrowed money that is used to pay for educational expenses and is expected to be paid back with interest.

Discount Rate

The rate of interest applied to loans provided to commercial banks and other financial institutions by the Federal Reserve through its discount window.

Present Value

The contemporary valuation of a sum of money to be received in the future, or of ongoing cash flows, based on an agreed upon return rate.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.