Consider an event which has a probability of occurring to any individual = 0.01 once each year, and never occurs twice in a year.. If this event occurs, it costs the person $100,000.
1) Explain why a company could stay in business if it sold insurance which covered their losses if this event occurs to them, but charges them $1200 per year for the insurance.
2) Explain why people might be willing to buy this insurance.