Problem
Using information in the Challenge Solution, show how to calculate the price of fair insurance if the probability of being in a crash is the frequency for 2002-2009. If the probability were as high as the frequency in 2001, 0.00000077, what would be a fair price? Use a graph to illustrate why a risk-averse person might buy unfair insurance. Show on the graph the risk premium that the person would be willing to pay.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.