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14 Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $360, the probability of a fire is 0.1%, and in the event
14 Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $360, 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 $350,000. a. Make a table of the two possible payouts on each policy with the probability of each. 10 points Outcome B: Outcome A: No Fire Fire! Payout eBook Print References 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? Variance Expected Return $ 10 Standard Deviation Chet 14 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 Outcome: No Fire Outcome: One Fire Outcome: Two Fires Payout Probability % % eBook Print References d. What are the expected value, variance and standard deviation of your profit? Expected Return Variance Standard Deviation
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