Suppose a homeowner spends $300 for a home insurance policy that will pay out $200,000 if the
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Suppose a homeowner spends $300 for a home insurance policy that will pay out $200,000 if the home is destroyed by fire in a given year. Let P = the profit made by the company on a single policy. From previous data, the probability that a home in this area will be destroyed by fire is 0.0002.
a. Make a table that shows the probability distribution of P.
b. Calculate the expected value of P. Explain what this result means for the insurance company.
c. Calculate the standard deviation of P. Explain what this result means for the insurance company.
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