Suppose that you face a gamble that has a payoff of $1000 with probability 0.2 and a payoff of $200 with probability 0.8. I approach you to sell you insurance with a premium of p and a benefit of b. Which combinations of p and b are actuarily fair?
A. p=8, b=10
B. p=400, b=500
C. p=720, b=900
D. (a) and (b) are actuarily fair
E. (a) and (c) are actuarily fair
F. (b) and (c) are actuarily fair
G. All of the above.
H. None of the above.
Answer: G
Economics
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