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?

Answer rating: 100% (QA)

To find the probability of each neighbor paying 25000 we need to consider the various combinations o... View the full answer