Question

This question was created from Problem Set 4 https://www.coursehero.com/file/6462679/Problem-Set-4/

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#1. 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 he a very risky asset? Why or why not?

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