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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
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. Requlred: 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, varlance, and standard deviation of your profit? (Do not round Intermedlate calculations. Round your standard devlation to the nearest whole number.) c. Now suppose your company issues two policles. The risk of fire Is independent across the two policles. Make a table of the three possible payouts along with their assoclated probabilities. (Negatlve answers should be Indicated with a minus sign. Round your "Probabillty" answers to 4 decimal places.) d. What are the expected value, varlance, and standard devlation of your profit? (Do not round Intermedlate calculatlons. Round your standard devlatlon to the nearest whole number.) e. Compare your answers to (b) and (d). Did risk pooling increase or decrease the varlance of your profit? f. Continue to assume the company has issued two policles, 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 policles, along with their associated probabilities. (Negative answers should be Indicated with a minus sign. Round your "Probability" answers to 4 decimal places.) g. What are the expected value and varlance of your profit? 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. Requlred: 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, varlance, and standard deviation of your profit? (Do not round Intermedlate calculations. Round your standard devlation to the nearest whole number.) c. Now suppose your company issues two policles. The risk of fire Is independent across the two policles. Make a table of the three possible payouts along with their assoclated probabilities. (Negatlve answers should be Indicated with a minus sign. Round your "Probabillty" answers to 4 decimal places.) d. What are the expected value, varlance, and standard devlation of your profit? (Do not round Intermedlate calculatlons. Round your standard devlatlon to the nearest whole number.) e. Compare your answers to (b) and (d). Did risk pooling increase or decrease the varlance of your profit? f. Continue to assume the company has issued two policles, 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 policles, along with their associated probabilities. (Negative answers should be Indicated with a minus sign. Round your "Probability" answers to 4 decimal places.) g. What are the expected value and varlance of your profit
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