Question: Assume That Four Business Owners Each Own An Identical Storage Building Valued At 500,000$. Assume That There Is A 2% Chance In Any Year Each Building Will Be Destroyed By A Peril (Fire) And That A Loss To Any Of The Buildings Is An Independent Event. Assuming That:(1) Fire Events Are
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Assume that four business owners each own an identical storage building valued at 500,000$. Assume that there is a 2% chance in any year each building will be destroyed by a peril (fire) and that a loss to any of the buildings is an independent event.
Assuming that:(1) Fire events are independent of each other(2) Each building faces the same types of risks and environmental conditions.
Given that, Answer the following questions:
A. Use the compound probability of independent events law to find the sample space of the probability of each possible event
B. Find the expected annual loss for each of the insureds.
C. Find the risk of incurrence of losses (Std dev)
D. Explain what happens to the objective risk with the addition of more individuals
E. Explain what happens to the expected loss with the addition of more individuals
F. Explain the importance of the law of large numbers to predict expected losses.
