The utility function of an individual, U(W) = 20W, where W stands for wealth. The initial wealth of the individual is Rs 400. Suppose this individual runs a factory, the chances of which catching a fire is 1/5. The damage that will be caused by such fire is estimated to be Rs 300.
1. What is expected loss due to the fire?
2. What is expected utility of the individual?
3. If the insurance company asks for a premium of Rs 61, would he pay for it?
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