Shane just bought a house worth $360,000 in an area that is known for floods. A flood occurs with a 5% chance and if it occurs, his home is reduced in value to $202,500. Shane has utility function given by U(X) = under X. He would be willing to pay a maximum of for flood insurance. The fair insurance premium for flood insurance is___. Shane's risk premium is. Suppose, instead, that Shane's utility function is given by U(X) = underroot X^2. Then, the maximum he would be willing to pay for flood insurance is.
a. 6205.83
b. 1068.75
c. 1245.75
d. 5245.50
e. 7875
f. 8943.75
g. 18,000
h. 25,100

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan