Answered: What is the expected value of this…

What is the expected value of this policy for the insurance company? What is the expected value of this policy for the homeowner?

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

A homeowner is considering buying a one-year fire insurance policy. They are told that there is a 0.6% chance that their house their house will burn down within the year, and it will cost $130,000.00 to rebuild the house. They find a one-year full-coverage fire insurance policy for $1,100.00.

What is the expected value of this policy for the insurance company?

What is the expected value of this policy for the homeowner?

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