11 Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $240, the probability of a fire is 0.1%, and in the event of a fire, the insured damages (the payout on the policy) will be $230,000 a. Make a table of the two possible payouts on each policy with the probability of each. 10 points Answer is complete but not entirely correct. Outcome Outcome A: B: No Fire Fire! Payout 240 $ (319,670) b. Suppose you own the entire firm, and the company issues only one policy. What are the expected value, variance and standard deviation of your profit? Answer is complete and correct. Return to question 11 b. Suppose you own the entire firm, and the company issues only one policy. What are the expected value, variance and standard deviation of your profit? 10 points Expected Return $ 10 Answer is complete and correct. Variance Standard Deviation 52847100 7270 c. Now suppose your company issues two policies. The risk of fire is independent across the two policies. Make a table of the three possible payouts along with their associated probabilities. (Round your "Probability" answers to 4 decimal places.) Answer is complete but not entirely correct. Outcome: Outcome: Outcome: No Fire One Fire Two Fires 11 Return to question c. Now suppose your company issues two policies. The risk of fire is independent across the two policies. Make a table of the three possible payouts along with their associated probabilities. (Round your "Probability" answers to 4 decimal places.) 10 points Answer is complete but not entirely correct. Outcome: Outcome: Outcome: No Fire One Fire Two Firest $ (229,520) S (229,520) 240 0.0001 % 0.0001 % 0.0000 % Payout Probability d. What are the expected value, variance and standard deviation of your profit? Answer is complete but not entirely correct. Expected Variance Standard Return Deviation Ennen ho 11 Return to question e. Compare your answers to (b) and (d). Did risk pooling increase or decrease the variance of your profit? Answer is complete and correct. increased the total variance of profit 10 points Risk pooling f. Continue to assume the company has issued two policies, but now assume you take on a partner, so that you each own one-half of the firm. Make a table of your share of the possible payouts the company may have to make on the two policies, along with their associated probabilitles. (Round your "Probability" answers to 4 decimal places.) Answer is complete but not entirely correct. Outcome: Outcome: Outcome: No Fire One Fire Two Fires $ 03 $ 230,000 S460,000 99,8001% 0.0000 0.0001 Payout Probability MC GEN HI