1. What happens if you pool some identically and independently distributed risks together? (Single choice) a. Expected loss does not change but variance of the average loss decreases b. Expected loss does not change but variance of the average loss increases c. Neither expected loss nor variance of the average loss changes d. Expected loss increases but variance of the average loss decreases
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We are given that the risks are identically and independently distributed (i.i.d.). This means that for each $X_i$: - The expected value $E[X_i] = \mu$ is the same for all $i$. - The variance $Var(X_i) = \sigma^2$ is the same for all $i$. - The risks are Show more…
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