Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $230, 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 $220,000. a. Make a table of the two possible payouts on each policy with the probability of each. Outcome A: No Fire Outcome B: Fire! Payout c. Now 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.) Outcome: No Fire Outcome: One Fire Outcome: Two Fires $ Payout Probability d. What are the expected value, variance and standard deviation of your profit? Variance Expected Return $ 239 Standard Deviation e. Compare your answers to (b) and (d). Did risk pooling increase or decrease the variance of your profit? Risk pooling the total variance of profit. Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $230, 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 $220,000. a. Make a table of the two possible payouts on each policy with the probability of each. Outcome A: No Fire Outcome B: Fire! Payout c. Now 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.) Outcome: No Fire Outcome: One Fire Outcome: Two Fires $ Payout Probability d. What are the expected value, variance and standard deviation of your profit? Variance Expected Return $ 239 Standard Deviation e. Compare your answers to (b) and (d). Did risk pooling increase or decrease the variance of your profit? Risk pooling the total variance of profit