Metlife decides to sell insurance policies protecting residential, single-family, detached houses from floods. Due to the effects of the climate change, the company estimates that the probability of a flood increased to 1% per per year in any given year. In the event of a flood, the company expects to pay $1M to a policyholder. If flood does not occur, the company receives an annual premium of $15,000 and does not pay anything. The company estimates that it will be able to sell 50,000 of these identical policies. The company will insure houses in different geographical locations, so that payments on these policies are uncorrelated with each other. What is the standard deviation of the Melife's portfolio of flood insurance policies?

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The probability of a flood occurring in any given year is 1 which means the probabi... View the full answer