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 $290, the probability of a fire is 0.1%, and in the event of

Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $290, 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 $280,000.

1. 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. (Negative answers should be indicated with a minus sign. Round your "Probability" answers to 4 decimal places.) 2. 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.)

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

Handbook Of Financial Econometrics

Authors: Yacine Ait-Sahalia, Lars Peter Hansen

1st Edition

044450897X, 978-0444508973

More Books

Students also viewed these Finance questions