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Nelghborhood Insurance sells fire Insurance policies to local homeowners. The premium is $140, the probability of a fire is 0.1%, and in the event of
Nelghborhood Insurance sells fire Insurance policies to local homeowners. The premium is $140, 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 $130.000. a. Make a table of the two possible payouts on each policy with the probability of each. Answer is complete but not entirely correct. Outcome Outcome A: B: No Fire Fire! Payout $ (140) $ 130,000 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? Answer is complete but not entirely correct. Expected Standard Return Variance Deviation $ 10 38481 191 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 assoclated probabilities. (Round your "Probability" answers to 4 decimal places.) Answer is complete but not entirely correct. Outcome: Outcome: No Fire One Fire Two Fires Payout (280) $ 120,830 5260.000 Probability 0.1988 % 0.0001% Outcome: IS 99.8001 d. What are the expected value, varlance and standard deviation of your profit? Answer is complete but not entirely correct. Expected Standard Variance Return Deviation $ 20 145795 X 382
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