Question

State Farm Insurance has developed the following table to describe the distribution of automobile collision claims paid during the past year.

Payment($)	Probability
0	0.83
500	0.06
1,000	0.05
2,000	0.02
5,000	0.02
8,000	0.01
10,000	0.01

(a)

Set up a table of intervals of random numbers that can be used with the Excel VLOOKUP function to generate values for automobile collision claim payments. Round your answers to two decimal places. If your answer is zero enter “0”.

Probability
From	To

(b)

Construct a simulation model to estimate the average claim payment amount and the standard deviation in the claim payment amounts.

Round your answers to the nearest whole number.

Average:	$
Standard Deviation:	$

(c)

Let X be the discrete random variable representing the dollar value of an automobile collision claim payment. Let, , , . . . ,  represent possible values of . Then, the mean () and standard deviation () of  can be computed as , and . What are the average and the standard deviation for the analytical model?

Round your answers to the nearest whole number.

Average:	$
Standard Deviation:	$

Answer 1