Question: Two neighbors each face the same probability distribution for potential fire losses to their homes. (60% chance of no loss, 20% chance of $12,500 loss,

Two neighbors each face the same probability distribution for potential fire losses to their homes. (60% chance of no loss, 20% chance of $12,500 loss, 10% chance of a $25,000 loss, 8% chance of $50,000 loss, and 2% chance of $100,000 loss.) They agree that they will face the risk together and share all losses equally. For example, if neighbor one’s house suffers a $100,000 loss and neighbor two’s house has no loss, they will each pay $50,000.

What is the probability of each neighbor paying $25,000?

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