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Consider a group of homeowners that wishes to insure against financial losses resulting from fire. Each home is worth $100,000. To make it simple, lets
Consider a group of homeowners that wishes to insure against financial losses resulting from fire. Each home is worth $100,000. To make it simple, lets assume that if fire occurs, the entire value of the house will be lost. In addition, assume probability of fire occurring in any one house is 10%, as the following table shows.
Fire | No Fire | |
Monetary Loss | $100,000 | $0 |
Probability | 0.1 | 0.9 |
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