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An insurance company will pay Dave $220,000 (the market value of the house) should his house be destroyed by fire during the year. In return,
An insurance company will pay Dave $220,000 (the market value of the house) should his house be destroyed by fire during the year. In return, Dave pays the insurance company $1280 that year (called the "premium") for that protection. Suppose the probability that Dave's house is destroyed by fire that year is 0.003. What is the expected net value of the insurance policy to Dave?
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