-Ashton Has the Utility of Wealth Curve Shown in the Above

question 123

Multiple Choice

-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. The maximum amount that Ashton is willing to pay for auto insurance is

• A) $6,000 per year.
• B) $3,000 per year.
• C) $9,000 per year.
• D) $10,000 per year.

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Definitions:

Net Assets

The total assets of an entity minus its total liabilities.

Capital Account

Part of a country's balance of payments, it records the net change in ownership of national assets.

Interest

The cost of borrowing money or the return on investment for savings and loans, expressed as a percentage.

Revaluation

The process of adjusting the book value of a fixed asset or foreign currency to reflect its current market value.