Now suppose Joys other friend Sam owns a $500,000 house, which has a 4% chance of experiencing a fire in any given year. Assume as before that the fire will result in a total loss. Now, lets assume that Schwartz Insurance Company offers only Joy and Sam (no Kate) full insurance contracts and charges them the same premium. In other words, Schwartz Insurance Company put Joy and Sam into the same risk pool. Schwartz Insurance Company then calculates the following Probability Distribution for the possible loss outcomes that could occur if it sells full insurance contracts to BOTH Joy AND Kate: Outcome Loss $ Amount Probability Both houses do NOT burn down $0 0.98 * 0.96 = 0.9408 Joys house burns down; AND Sams house does not burn down $250,000 0.02 * 0.96 = 0.0192 Sams house burns down; AND Joys house does not burn down $500,000 0.04 * 0.98 = 0.0392 Both houses burn down $750,000 0.02 * 0.04 = 0.0008 1.00 a) What premium must Schwartz Insurance Company charge to each Joy and Sam if they want to break-even? (Hint: this means the total premium collected must be equal the total expected losses to be paid out)