What is the expected profit of Carolina restaurant each year

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Question 1 - Carolina manages a restaurant along the beach in Florida. The restaurant makes $850,000 each year in profit as long as no hurricane hits the area. However, if a hurricane does hit and causes partial damage, the restaurant only makes $350,000 that year, and if a hurricane hits and causes full damage, the restaurant makes $0 that year. Based on historical trends, the chance of a hurricane occurring and causing partial damage to the restaurant is 20%, and the probability of a hurricane occurring and causing full damage to the restaurant is 10%. What is the expected profit of Carolina's restaurant each year? (Write answer without the dollar sign.)

Question 2 - Carolina manages a restaurant along the beach in Florida. The restaurant makes $850,000 each year in profit as long as no hurricane hits the area. However, if a hurricane does hit and causes partial damage, the restaurant only makes $350,000 that year, and if a hurricane hits and causes full damage, the restaurant makes $0 that year. Based on historical trends, the chance of a hurricane occurring and causing partial damage to the restaurant is 20%, and the probability of a hurricane occurring and causing full damage to the restaurant is 10%. Carolina is looking to get insurance and she contacts Geico who offer her an insurance policy that will pay $300,000 if the restaurant incurs partial damage and will pay $500,000 if the restaurant incurs full damage. What is the actuarially fair premium price for this policy? (Write answer without the dollar sign.)

Reference no: EM132856599

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