Please could somebody go through step by step how to make P the subject and solve it for me as well please.

Printable View

- August 19th 2009, 10:39 PMRapid_WRearange to find P

Please could somebody go through step by step how to make P the subject and solve it for me as well please. - August 19th 2009, 11:12 PMGrandad
- August 19th 2009, 11:39 PMRapid_W
Not really an algebra field, but seen as you asked nicely:

An individual’s utility function is represented by

U(x) = 3ln(x), where x, his total wealth including the value of his stamp collection, is £300,000.

There is a 2% probability of theft or fire, which would make his collection, worth £20,000 worthless.

The utility function of an insurance company is represented by

U(x) = ln (x + 100,000)

where x denotes the value of the company’s assets which are currently valued at £1,000,000.

Show that the individual would be prepared to accept a

policy where he would pay a premium of £300 and the first

£500 of a claim, so that the insurance company would pay

out an amount in excess of £500.