4.154 Risk for one versus many life insurance policies.
It would be quite risky for an insurance company to insure the life of only one 25-year-old man under the terms of Exercise 4.153. There is a high probability that person would live and the company would gain $875 in premiums. But if he were to die, the company would lose almost $100,000. We have seen that the risk of an investment is often measured by the standard deviation of the return on the investment. The more variable the return is (the larger σ is), the riskier the investment.
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