State Farm receives a one-year hurricane insurance premium today of $1,750 from a family in Florida.

State Farm receives a one-year hurricane insurance premium today of $1,750 from a family in Florida. If there is a hurricane this season and the family's home is damaged, this insurance policy will pay for all the repairs. Their home is valued at $250,000. Repairs would cost on average a quarter of home value ($62,500 in this case). Assume repairs (if any) would be paid one year from today. There is a 1% chance of hurricane damage in any given year. If the required rate of return for State Farm is 5%, how does writing this policy change State Farm's wealth?

Decreases by $1,155 

Decreases by $464 

Wealth is unchanged 

Increases by $464 

Increases by $1,155