In each of the problems below, provide the details/data required. Show your solutions in good form. (10 marks)

Assume two business owners each own an identical storage building in Manama valued at BD 25,000. Further assume there is a 5% percent chance in any year that each building will be destroyed by a peril, and that a loss to either building is an independent event. However, instead of bearing the risk of loss individually, the two owners decide to pool (combine) their loss exposures, and each agrees to pay an equal share of any loss that might occur.

Requirements;

a. Calculate the expected loss for each of the business owner.

(3 marks for the correct process + 2 marks for the correct answer = 5marks)

b. Estimate the objective risk as a result of the pooling.

(3 marks for the correct process + 2marks for the correct answer = 5 marks)