Suppose Mr. A is faced with the possibility of an auto accident this coming year....
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Suppose Mr. A is faced with the possibility of an auto accident this coming year. Assume the probability of the accident is 40% (0.40). [Obviously, Mr. A is a more reckless driver than you are]. Also assume that the cost of the auto accident for Mr. A is $20,000. Finally, assume that Mr. A will have $100,000 at the end of the year if he does not have an accident. Without insurance Mr. As wealth at the end of the year is uncertain.
What is the standard deviation of Mr. As wealth at the end of the year?
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