Continuing with the Same Family from the Preceding Question,suppose a Risk

question 18

Multiple Choice

Continuing with the same family from the preceding question,suppose a risk neutral insurance company exists to provide vacation insurance.Suppose further that each vacation day requires a constant expenditure,and this expenditure is standard across everybody. This allows us to simplify the problem by considering all payments to be in terms of vacation days. What is the least the insurance company would charge (in terms of vacation days) ?

• A)3
• B)4
• C)5
• D)6

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Definitions:

Percentage Discount

A percentage discount refers to a reduction in price on goods or services based on a specified percentage of the original price.

Periodic Interest Rate

The interest rate applied to a loan or investment for a specific period, shorter than a year, such as monthly or quarterly.

Annuity

An annuity is a financial offering that ensures a regular payout to an individual, chiefly employed as a means of financial support for retired persons.

Compounded Quarterly

Interest calculated and added to the principal every quarter (three months), which then accrues additional interest in subsequent quarters.