Johnny Owns a House That Would Cost $100,000 to Replace

question 101

Essay

Johnny owns a house that would cost $100,000 to replace should it ever be destroyed by fire.There is a 0.1% chance that the house could be destroyed during the course of a year.Johnny's utility function is U = W^0.5.How much would fair insurance cost that completely replaces the house if destroyed by fire? Assuming that Johnny has no other wealth,how much would Johnny be willing to pay for such an insurance policy? Why the difference?

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Definitions:

Self-Propulsion

The ability of an object or being to move or propel itself using its own power mechanism without external assistance.

Double Helix

The structure of DNA, consisting of two strands that wind around each other like a twisted ladder.

PKU

stands for Phenylketonuria, a genetic disorder resulting from the body's inability to process the amino acid phenylalanine, leading to its accumulation and potential brain damage.

Recessive Gene

A gene that produces its characteristic phenotype only when its allele is identical and not masked by a dominant allele in a heterozygous condition.