Problem
1. How is the equilibrium interest rate determined in the market for capital? Who are the suppliers and demanders of capital?
2. How can expected value be used to evaluate risky investments?
3. What is the value of insurance to a risk-averse consumer?
4. Why do we consider diversification a key function of insurance markets?
5. Define the risk-free interest rate. How does it relate to the interest rate on a risky investment?
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.