Ashwini Is Thinking of Buying Travel Insurance (Which Pays Her

Multiple Choice

Ashwini is thinking of buying travel insurance (which pays her if she needs to cancel her trip) for her trip to Cancun over spring break. There is a 5 percent chance that she will need to cancel her trip. Without insurance she would lose the full $2,000 price of the trip; with insurance she would get a full refund of $2,000. The premium for this insurance is $105. Which of the following is CORRECT? I. The expected value of Ashwini's loss is $100.
II) If Ashwini is risk averse she is willing to buy the insurance only if its price is less than $100.

A) I only
B) II only
C) I and II
D) neither I nor II