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Mel Is Thinking of Going on a Cruise

Question 57
Multiple Choice

Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1200.If Mel is not risk averse,Mel should buy trip insurance A)never. B)only if it costs less than $780. C)only if it costs less than $20. D)only if it costs less than $50

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Q 58
Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice. Mels' friend Flo is risk-averse.Flo's reservation prices for cruises under the different weather conditions are the same as Mel's.Flo will A)always buy trip insurance. B)never be willing to pay more than $500 for a cruise. C)be willing to pay more for trip insurance than Mel. D)be willing to pay the same amount for trip insurance than Mel.
Q 59
Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice. A gamble that offers a 1% chance of winning $699.93 and a 99% chance of losing $7.07 would be classified as a(n) A)better than fair gamble. B)gamble that only a risk-seeker would take. C)fair gamble. D)unfair gamble.
Q 60
Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice. If a gamble has an expected value of $10,then one can predict that A)only risk-averse persons will take the gamble. B)no risk-averse person will take the gamble. C)all risk-neutral persons will take the gamble. D)the gamble never pays off more than $10.
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