1. A consumer who obeys the von Neumann-Morgenstern axioms and has an initial wealth
of 160,000 is subject to a fire risk. There is a 5 percent probability of a major fire with a
loss of 70,000 and a 5 percent probability of a disastrous fire with a loss of 120,000. Her
utility function is U = W^0.5. She is offered an insurance policy with the deductibility
provision that she bears the first 7620 of any fire loss. What is the maximum premium
that she is willing to pay for this policy?