Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $110, the probability of a fire is 0.1% and in the event of

image text in transcribed
Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $110, 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 $100,300. a. Suppose you own the entire firm, and the company issues only one policy. What are the expected payout, expected profit, variance and standard deviation of your scenario? (Enter all answers in dollars, rounded to 2 decimal places. Round Profit to the nearest whole dollar.) Answer is complete but not entirely Payouts on one policy Expected Payout $ 100.30 Profit $ 9.717 Payout Variance $ 10,060.09 Payout Standard 100.30X Deviation b. Now suppose your company issues two policies. The risk of fire is independent across the two policies. Make a table of the payout and profit, along with their associated variances and standard deviations. (Enter all answers in dollars, rounded to 2 decimal places. Round Profit to the nearest whole dollar) Answer is not complete. Total payouts when two policies have been issued Expected Payout $ 200.60 Profit $ 19.407 Payout Variance $ 141.84 Payout Standard Deviation c. 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 the possible payout and profit for the company, along with their associated variances and standard deviations. (Enter all answers in dollars, rounded to 2 decimal places. Round Profit to the nearest whole dollar) Payouts on a half-sponsorship of two policies Expected Payout Profit Variance Standard Deviation

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Begin Investing In Real Estate With The Ultimate Guide

Authors: Tadahikol T. Nakamura

1st Edition

979-8867848330

More Books

Students also viewed these Finance questions