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Neighborhood Insurance sells fire Insurance polides to local homeowners. The premlum Is $330, 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 $320,000. a. Make a table of the two possible payouts on each policy with the probability of each. Answer is complete and correct Outcome Outcome A: B: No Fire Fire! $ 330 $ (319,670) Payout b. Suppose you own the entire firm, and the company issues only one policy. What are the expeded value, varlance and standard deviation of your profit? Answer is complete and correct Expected Standard Return Variance Deviation $ 10102297600 10114 c. Now suppose your company Issues two polides. The risk of fire Is Independent across the two polides. Make a table of the three possible payouts along with their associated probabilitles. (Round your "Probability" answers 4 decimal places.) Answer is complete and correct Payout Probability Outcome: No Fire $ 880 99.8000 Outcome: One Fire $ (319,340) 0.1999 Outcome: Two Fires $ (639,340) 0.0000 % d. What are the expeded value, varlance and standard devlation of your profit? Answer is not complete. Variance Expected Return $ 20 Standard Deviation e. Compare your answers to (b) andid. Did risk pooling Increase or decrease the varlance of your profit? Answer is complete and correct Risk pooling increased the total variance of profit, f. Continue to assume the company has issued two policies, 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 polides, along with their assodated probabiltles. (Round your "Probability" answers to 4 decimal places.) Answer is not complete. Outcome: No Fire Outcome: One Fire Outcome: Two Fires Payout Probability 99.8000 0.1999 % 0.0001 Neighborhood Insurance sells fire Insurance polides to local homeowners. The premlum Is $330, 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 $320,000. a. Make a table of the two possible payouts on each policy with the probability of each. Answer is complete and correct Outcome Outcome A: B: No Fire Fire! $ 330 $ (319,670) Payout b. Suppose you own the entire firm, and the company issues only one policy. What are the expeded value, varlance and standard deviation of your profit? Answer is complete and correct Expected Standard Return Variance Deviation $ 10102297600 10114 c. Now suppose your company Issues two polides. The risk of fire Is Independent across the two polides. Make a table of the three possible payouts along with their associated probabilitles. (Round your "Probability" answers 4 decimal places.) Answer is complete and correct Payout Probability Outcome: No Fire $ 880 99.8000 Outcome: One Fire $ (319,340) 0.1999 Outcome: Two Fires $ (639,340) 0.0000 % d. What are the expeded value, varlance and standard devlation of your profit? Answer is not complete. Variance Expected Return $ 20 Standard Deviation e. Compare your answers to (b) andid. Did risk pooling Increase or decrease the varlance of your profit? Answer is complete and correct Risk pooling increased the total variance of profit, f. Continue to assume the company has issued two policies, 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 polides, along with their assodated probabiltles. (Round your "Probability" answers to 4 decimal places.) Answer is not complete. Outcome: No Fire Outcome: One Fire Outcome: Two Fires Payout Probability 99.8000 0.1999 % 0.0001
