The annual premium for a ​$5,000 insurance policy against the theft of a painting is ​$250. If the​ (empirical) probability that the painting will be stolen during the year is 0.01​, what is your expected return from the insurance company if you take out this​ insurance? Let X be the random variable for the amount of money received from the insurance company in the given year.

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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.