Answer :
Final Answer
The table of possible payouts on each policy with the probability of each is as follows:
- Payout: $0 with a probability of 99.9%
- Payout: $140,000 with a probability of 0.1%
Explanation
Neighborhood Insurance offers fire insurance policies with a premium of $150. To create a table of possible payouts with their associated probabilities, we consider two scenarios: one where there is no fire, and one where a fire occurs.
To create the table of possible payouts, we consider the premium, the probability of a fire, and the insured damages:
The premium is $150, and this is the amount paid by every policyholder, regardless of whether there is a fire or not.
The probability of a fire is 0.1% or 0.001 (expressed as a decimal).
In the event of a fire, the insured damages are $140,000.
Now, we calculate the possible payouts:
For 99.9% of policyholders (1 - 0.001), there is no fire, so they receive $0 in damages.
For 0.1% of policyholders (0.001), there is a fire, and they receive $140,000 in damages.
The table reflects these calculations, with the respective probabilities associated with each payout scenario. This information is crucial for assessing the risk and expected payouts for Neighborhood Insurance's fire insurance policies.
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