The Smiley Face Fire Insurance Company was insuring $100,000 homes for 90 percent of their value (that
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The Smiley Face Fire Insurance Company was insuring $100,000 homes for 90 percent of their value (that is, $90,000). Its premium was $900 a year. It decides to offer a new fire insurance policy that pays $120,000 when the $100,000 home burns. It increases its premium to $1,200. If it was breaking even on its old policy, will it make or lose money on the new policy?
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Let f be the fraction of homes that burn down Ignoring other costs t...View the full answer
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