Head & Shoulders shampoo insured spokesman Troy Polamalu’s (of the Pittsburgh Steelers) head of hair for $1 million with Lloyd’s of London. The insurance payout would be triggered if he lost at least 60% of his hair during an on-field event.

Assume the insurance company placed the odds of a payout at 1% in year 5. If Lloyd’s of London wanted a rate of return of 20% per year compounded semiannually, how much did Head and Shoulders have to pay in a lump sum amount for the insurance policy?

Equivalence when PP  CP