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You take out earthquake insurance on your home. The annual premium is $600. In case of an earthquake the company will pay you $400,000. The probability of an earthquake in your area is 0.0002. 

  1. What is the expected value of the policy for you?
  2. What is the insurance company's expected value?
  3. Suppose the insurance company sells 100,000 of these policies. What can they expect to earn?

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