You own a house worth $250,000 and intend to insure it fully against fire for the next year. Suppose the
probability of its burning to the ground during the year is .0001 and that an insurance policy covering the full value costs $500.
Consider the insurance policy as a security.
a. What is the expected holding-period return?
b. What is the standard deviation of it HPR
c. Would you consider this policy to be a very risky asset? Why or why not?
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