Will contract if he is charged break-even premium

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Reference no: EM133517343

Assignment:

Rhoda Ronner owns a $500,000 home and has a 1% chance of experiencing a loss that destroys her home in any given year.

Now suppose Wile E. has a 3% chance of experiencing a total loss in any given year. Rhoda's probability of a total loss in any given year has not changed. Suppose Freedom Insurance Company still offers Wile E. and Rhoda the same insurance contract and charges them the same premium; in other words, Freedom Insurance Company put Rhoda and Wile E. into the same risk pool. Show calculations; display four decimal places.

Create a probability distribution table of possible outcomes for Freedom Insurance Company if Freedom sells insurance to both Rhoda and Wile E. Show calculations; display four decimal places.
What premium amount must Wile E. and Rhoda each individually pay if Freedom Insurance Company wants to "break even"? Show calculations.
Will Wile E. purchase this contract if he is charged the "break-even" premium? Will Rhoda purchase this contract if she is charged the "break-even" premium? Briefly explain your reason. Show calculations.

Reference no: EM133517343

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