Question

The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance follows.

Payment ($) | Probability | |
---|---|---|

0 | 0.82 | |

500 | 0.05 | |

1000 | 0.04 | |

3000 | 0.04 | |

5000 | 0.03 | |

8000 | 0.01 | |

10000 | 0.01 |

**a.** Use the expected collision payment to
determine the collision insurance premium that would enable the
company to break even. **Answer: $**

**b.** The insurance company charges an annual rate
of $595 for the collision coverage. What is the expected value of
the collision policy for a policyholder? (*Hint:* It is the
expected payments from the company minus the cost of coverage.)
Enter negative values as negative numbers. **Answer:
$**

Why does the policyholder purchase a collision policy with this expected value?

The policyholder is concerned that an accident will result in a
big repair bill if there is no Item 3 insurance coverage. So even
though the policyholder has an expected annual loss of
**$________ ,** the insurance - is protecting Item 5
against a large loss.

Answer #1

The Statewide Auto Insurance Company developed the following
probability distribution for automobile collision claims paid
during the past year:
PAYMENT ($)
Probability
0
0.83
500
0.06
1000
0.05
2000
0.02
5000
0.02
8000
0.01
10000
0.01
Set up intervals of random numbers that can be used to generate
automobile collision claim payments.
Using the 20 random numbers below (first row first, left to right,
simulate the payments for 20 policyholders.
0.7806
0.7370
0.2120
0.2540
0.2673
0.4927
0.1885
0.1530
0.6313
0.8631...

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...

1a) An insurance company would like to offer theft insurance for
renters. The policy would pay the full replacement value of any
items that were stolen from the apartment. Some apartments have
security alarms installed. Such systems detect a break-in and ring
an alarm within the apartment. The insurance company estimates that
the probability of a theft in a year is 0.05 if there is no
security system and 0.01 if there is a security system (there
cannot be more...

DATA:
Probability
Payment
0.75
0
0.12
1000
0.08
5000
0.04
7000
0.01
10000
Questions refer to the following problem.
The data shows the probability distribution of damage claims ($)
paid out by an insurance company last year on their collision
insurance policy:
What is the average amount that the insurance can expect to pay
in insurance claims?
A.
$840
B.
$900
C.
$1,060
D.
$760
QUESTION 22
What is the standard deviation of the amount that the insurance
can expect...

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