1. The promoter of a football game is concerned that it will rain. They have the option of spending $8000 on insurance that will pay $40,000 if it rains. They estimate that the revenue from the game will be $60,000 if it does not rain and $25,000 if it does rain. What must the chance of rain be if buying the policy has the same expected return as not buying it?
2. Bob wishes to insure a priceless family heirloom against theft. The annual premium for policy
A is $150, and it will pay $75,000 if the heirloom is stolen. Policy B will pay $100,000, but the annual premium is $250. Bob estimates the probability that the heirloom will be stolen in any given year and concludes that both policies have the same expected return. What is this estimated probability?