Scenario: Flood Area Suppose you own a home that is estimated to be worth $250,000.You live in a potential flood area; as a result, the probability that you will lose your home to a flood is 30%.
(Scenario: Flood Area) Look at the scenario Flood Area.Suppose an insurance company offers you flood insurance.Most likely this flood insurance would require a premium payment:
A)greater than $250,000.
B)greater than $75,000.
C)less than $15,000.
D)equal to $100,000.

Question

Quizplus · Accepted Answer

Since there is a 30% chance of losing the home to a flood, the insurance company will likely charge a premium based on the expected value of the loss, which is $75,000 (30% of $250,000). Therefore, the premium payment would be greater than $75,000.

Scenario: Flood Area Suppose You Own a Home That Is