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Neighborhood Insurance sells fire insurance policies to local homeowners. The premium is $170, the probability of a fire is 0
b. Suppose you own the entire firm, and the company issues only one policy. What are the expected value, variance and standar
C. Now suppose your company issues two policies. The risk of fire is independent across the two policies. Make a table of the
d. What are the expected value, variance and standard deviation of your profit? Expected Return Variance Standard Deviation e
1. Continue to assume the company has issued two policies, but now assume you take on a partner, so that you each own one-hal
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Answer #1

a Payout: No tire 170 fine 170 - 160000=159,830) - In case of fire premium incorne is still received. b. Expected netwinno -8 c. No Fire Payont 170x2= 340 a Probability 0.999x0.999 V = 0.998001 10 Rounded to dec. 0.9980 One Fire 340-160ooo= (159660)

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