What is burt expected loss

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Reference no: EM131843018

Suppose Burt and Ernie each face a 10% likelihood of breaking their leg this year (one’s a circus clown, the other a fireman). Suppose, too, that the medical costs of a broken leg run $5,000.

• What is Burt’s expected loss?

• What is the likelihood Burt will have to pay $5,000 in medical bills this year?

Now suppose Burt and Ernie decide to pool their losses.

• What is Burt’s expected loss?

• What is the likelihood Burt will have to pay $5,000 in medical bills this year?

• If Burt and Ernie pool their risks, will they reduce or transfer their total risks?

Reference no: EM131843018

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