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 $100,000.

c. Suppose your company issues two policies. The risk of fire is independent across the two policies. Make a table of the three possible payouts along with their associated probabilities. (Round your "Probability" answers to 4 decimal places.)

Payout Probability

Outcome A ? % No fire

Outcome B ? % One Fire

Outcome C ? % Two Fires

d. What are the expected value, variance and standard deviation of your profit?

Expected Return:

Variance:

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. (Round your "Probability" answers to 4 decimal places.)

Payout Probability

Outcome A ? % No fire

Outcome B ? % One Fire

Outcome C ? % Two Fires

g. What are the expected value and variance of your profit?

Expected Return:

Variance:

Standard Deviation: