An insurance company will insure a $50,000 diamond for its full value against theft at a premium of $400 year.  Suppose that the probability that the diamond will be stolen is .005, and let x denote the insurance company's profit. Set up the probability of the random variable x. Calculate the insurance company's expected profit. Find the premium that the insurance company should charge if it wants its expected profit to be $1000.00. Please show your work.

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A: Future Value: It is the future worth of the present sum of the amount and is estimated by the…

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A: Expected values is the sum of all possible returns with their probability of occurrence.Standard…

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Q: (Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay…

A: Present Value refers to the discounted value of a single cash flow or multiple cash flows today…

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A: Annual premium=$5000Insurance policy against theft=$250Probability of painting stolen=0.01

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A: Cash flow diagram from the buyer's perspective.

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A: Return on asset (ROA) is the ratio to calculate the efficiency and profitability which a firm will…

Q: (Related to Checkpoint 5.6) (Solving for ) You are considering investing in a security that will pay…

A: Discount rate (r) = 10% or 0.1Number of years (n) = 31Future Value (FV)  = $4,000

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Q: Assume you have won a lottery prize of $5,000, which works out great since you want to buy a new…

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A: In this question, we are required to determine the expected return.

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A: Option 1 Lumpsum Amount = $953,700 Interest Rate = 4% Option 2 Monthly Installments = $4,675.00 Time…

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Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.