Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $340, 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 $330,000.

Required:

a. Make a table of the two possible payouts on each policy with the probability of each. (Negative answers should be indicated with a minus sign.) Payout outcome A (No fire):

Payout outcome B (Fire): 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? (Do not round intermediate calculations. Round your standard deviation to the nearest whole number.) Expected return:

Variance:

Standard deviation: d. What are the expected value, variance, and standard deviation of your profit? (Do not round intermediate calculations. Round your standard deviation to the nearest whole number.) Expected return:

Vairance:

Standard deviation:

f. Continue to assume the company has issued two policies, but now assume you take on a partner, so that you each own one-half of the firm. Make a table of your share of the possible payouts the company may have to make on the two policies, along with their associated probabilities. (Negative answers should be indicated with a minus sign. Round your "Probability" answers to 4 decimal places.) $ Payout for outcome (no fire):

$ Payout for outcome (one fire):

$ Payout for outcome (two fire):

% Probability for outcome (no fire):

% Probability for outcome (one fire):

% Probability for outcome (two fire): g. What are the expected value and variance of your profit?

Expected return:

Variance:

Standard deviation: