Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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

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

More Books

Students also viewed these Finance questions

Question

=+What is our leadership style like?

Answered: 1 week ago

Question

=+What are our core competencies or competitive advantages?

Answered: 1 week ago