A hurricane bond pays the holder a face amount, say 1 million, if a hurricane causes major damage in the United States. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm...

A hurricane bond pays the holder a face amount, say
1 million, if a hurricane causes major damage in the United States. Suppose that the chance for such a storm is 5% per year.

(a) If a financial firm sells these bonds for
60,000, what is the chance that the firm loses money if it only sells one of these?

(b) If the firm sells 1,000 of these policies, each for +60,000, what is the probability that it loses money?

(c) How does the difference between the probabilities of parts (a) and (b) compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another?