Assume that three restaurant owners have decided to pool their losses together; each owns an identical

restaurant valued at $600,000. Suppose that there is a 4% chance in any year each restaurant will catch

fire. The loss to any of the restaurants is an independent event. Assuming that:

(1) Fire events are independent of each other

(2) Each restaurant faces the same types of risks and environmental conditions.

Given that, Answer the following questions:

A. Use the compound probability of independent events law to find the sample space of the probability

of each possible event

B. Find the expected annual loss for each of the insureds.

C. Find the risk of incurrence of losses (Std dev)

D. Explain what happens to the objective risk with the addition of more individuals