Bikul Has Just Started a Great Job and Plans to Buy

question 66

Multiple Choice

Bikul has just started a great job and plans to buy a fancy car worth $100,000.Bikul is risk-averse in money matters,but he likes to drive fast,so the probability that he wrecks the car (a total loss of $100,000) is 0.10.The probability that he has no accidents is 0.90.If an insurance company offers Bikul a fair insurance policy,the premium will be:

• A)$10,000.
• B)$90,000.
• C)$80,000.
• D)It is impossible to calculate a premium unless we know Bikul's utility function.

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Definitions:

Common Stock Account

An equity item on the balance sheet representing funds raised by issuing common shares.

Current Market Price

The price at which an asset or security is traded in the market at the present moment.

Current Liabilities

Obligations or debts of a company that need to be settled with creditors within a twelve-month period.

Twelve Months

A period of one year, often used in financial statements to provide a snapshot of a company's performance.