Shaq is a basketball player. He’s worried about receiving an injury that will mean an entire season off basketball. Currently, he is paid $120,000 per year to play basketball. If he is injured, his salary is reduced to $50,000 per year. The probability of sustaining an injury bad enough to necessitate him having a season off is 45%.
(a) Will Shaq buy insurance if an insurance company is able to offer him fair insurance? How much is his premium?