Homework #6, Econ 306, Prof. Hanson.

1. For each of the following risks give a good reason why you might not want to buy insurance regarding that risk: having a bad hair day, failing out of college, becoming depressed, who is the next president, divorce.

2. If the current interest rate is 10%, and you borrow $100,000 by promising to pay a fixed sum per year every year from now on, how much will you pay? If the interest rate rises to 20% the next day, how much immediate cash will someone else charge to take over your payment obligations?