Home » . a. Utility is a key component of explaining the Risk Aversion Model. What is utility and why is this Risk Aversion Model so important to insurance

# . a. Utility is a key component of explaining the Risk Aversion Model. What is utility and why is this Risk Aversion Model so important to insurance

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a. Utility is a key component of explaining the Risk Aversion Model. What is utility and why is this Risk Aversion Model so important to insurance companies? Be sure to include a graph when explaining the Risk Aversion Model labeling the horizontal and vertical axis.

b. In 2014, one group had an unemployment rate at 3.7% while another group had unemployment at 7.9%. Give three reasons to explain the difference in unemployment between these two groups.

c. Suppose you just won a small lottery that pays you 20,000 at the beginning of each year for three years. If you didn’t spend any money, how much would you have after three years if the interest rate were at 9 percent? Alternatively, the lottery is willing to pay you an all-at-once payment of \$57,000 today instead of 20,000 per year at the beginning of each year. If the interest rate remains the same at 9 percent, should you take the all-at-once payment of \$57,000 or \$20,000 per year at the beginning of each year? Explain

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