Suppose there are two drivers, Jermaine and Janet. Jermaine is not a very safe driver. In fact, there is a 7.5% chance that he will have an accident within the next year. Janet is a relatively safe driver. Her chances of having an accident in the next year are only 1%. If Jermaine is involved in an accident, he will cost the insurance company $1,000,000. If Janet is involved in an accident, she will only cost the company $500,000. What is the expected pay-out that the company can expect from insuring these two?
What will be an ideal response?
The expected payout is 1,000,000(0.075) + 500,000(0.010) = $80,000.
You might also like to view...
An appreciation of the U.S. dollar occurs when
A) the international price of the dollar falls. B) the international price of the dollar rises. C) the supply of dollars in international markets increases. D) the U.S. demand for foreign currencies increases.
In the above figure, starting at E1, if there is a supply shock that is temporary, the
A) aggregate supply would shift to SRAS1 and LRAS0 would shift to LRAS1. B) aggregate supply would shift to SRAS2 and LRAS0 would shift to LRAS1. C) aggregate supply would shift to SRAS1 and then return to SRAS0. D) aggregate supply would shift to SRAS0 and LRAS1 would shift to LRAS0.
Suppose you are a policy maker who feels it is important to improve the short-run output of your nation. According to rational expectations theory, which of the following policies would be most likely to achieve your aim?
a. Make an unexpected cut in the federal funds rate. b. Announce an ambitious plan for monetary expansion. c. Make an unexpected increase in the federal funds rate. d. Announce a series of planned increases in the inflation rate.
A perfectly elastic demand curve is
A. a downward sloping straight line. B. horizontal. C. a rectangular hyperbola. D. vertical.