Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent.

Loss =	$50,000 with probability 0.01
$1,000 with probability 0.03
$0 with probability 0.96

(1)Calculate the expected loss to each person prior to and subsequent to entering into a pooling arrangement.

(2) Calculate the standard deviation of the loss distribution to each person prior to and subsequent to entering into a pooling arrangement. What happens to the standard deviation subsequent to the pooling arrangement?