To make a table of the two possible payouts on each policy with the probability of each, we can use the following information:
The premium is $280.
The probability of a fire is 0.1% or 0.001.
In the event of a fire, the insured damages will be $270,000.
There are two possible outcomes:
No fire occurs:
The probability of this outcome is 1 - 0.001 = 0.999.
The payout is $0.
Fire occurs:
The probability of this outcome is 0.001.
The payout is $270,000.
Therefore, the table of the two possible payouts on each policy with the probability of each is:
Outcome Probability Payout
No fire 0.999 $0
Fire 0.001 $270,000
Note that the expected value of the policy can be calculated as the sum of the products of the probabilities and payouts:
Expected value = (0.999 x $0) + (0.001 x $270,000) = $270.