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 $ 2 7 0 , the probability of a fire is 0 .

Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $270, 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 $260,000.
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.)
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.)
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. (Negative answers should be indicated with a minus sign. Round your "Probability" answers to 4 decimal places.)
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.)Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $270, 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 $260,000.
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.)
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.)
image text in transcribed

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

Practical Finance For Property Investment

Authors: Craig Furfine

1st Edition

036733304X, 978-0367333041

More Books

Students also viewed these Finance questions

Question

The models used to analyse different national cultures.

Answered: 1 week ago

Question

The nature of the issues associated with expatriate employment.

Answered: 1 week ago