Question

An insurance policy pays the loss amount up to a maximum of 500. The loss distribution...

An insurance policy pays the loss amount up to a maximum of 500. The loss distribution for the first policy is exponentially distributed with mean 1000. The loss distribution for the second policy is uniformly distributed between 0 and 1250. What is the total insurer's expected payment for the two policies?

The result should be 793

Math   Statistics-And-Probability   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

We are given here that the insurance agency pays loss upto a max of 500.

Therefore for the first policy the loss amount distribution is given as:

Therefore the expected amount for this policy is computed as:

Now for the second policy the expected amount is computed here as:

Therefore the total expected values for the 2 policies is computed here as: 392.54 + 400 = 793

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An insurance policy for water damage pays an amount of damage up to $500. The amount...
An insurance policy for water damage pays an amount of damage up to $500. The amount of damage is uniformly distributed between $250 and $1,280. a. What is the probability that the amount of damage is more than $450? Round your answer to 3 decimals. Number b. What is the probability that the amount of damage is between $715 and $920? Round your answer to 3 decimals.
The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance...
The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance follows. Payment ($) 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 medical insurance plan reimburses $100 per day, up to a maximum of five days, for...
A medical insurance plan reimburses $100 per day, up to a maximum of five days, for each day the policy holder is hospitalized. It is estimated that the probability that any person is hospitalized for exactly one day is 0.001, for exactly two days is 0.002, for exactly three days is 0.003; for exactly four days is 0.004, and for five or more days 0.008. The annual premium is $10. (a) Construct the probability distribution for X, the number of...
The idea of insurance is that we all face risks that are unlikely but carry high...
The idea of insurance is that we all face risks that are unlikely but carry high cost. Think of a fire destroying your home. So we form a group to share the risk: we all pay a small amount, and the insurance policy pays a large amount to those few of us whose homes burn down. An insurance company looks at the records for millions of homeowners and sees that the mean loss from fire in a year is μ...
You are looking to get car insurance, with maximum coverage of 128 thousand USD. Let's model...
You are looking to get car insurance, with maximum coverage of 128 thousand USD. Let's model the probability of losses over the year as a discrete distribution, as follows: 1 K: 10% 5 K: 2% 10 K: 1% 50 K: 0.5% 128 K: 0.1% If you decide to self-insure up to $563 of loss (in other words, take a deductible of $563), how much less will you have to pay for your policy? Hint: find the probability of a loss...
The Statewide Auto Insurance Company developed the following probability distribution for automobile collision claims paid during...
The Statewide Auto Insurance Company developed the following probability distribution for automobile collision claims paid during the past year: PAYMENT ($) 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...
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...
1) At a lumber company, shelves are sold inȱȱ5 types of wood, 4 different widths and...
1) At a lumber company, shelves are sold inȱȱ5 types of wood, 4 different widths and 3 different lengths. How many different types of shelves could be ordered? 2) A shirt company has 5 designs each of which can be made with short or long sleeves. There are 4 different colors available. How many differentȱȱshirts are available from this company? Find the indicated probability. Round your answer to 2 decimal places when necessary. 3) A bag contains 6 red marbles,...
MATH220 Lab04 Due Date: See ACE Excel File: Lab2204-182.xlsx 1 Question 1: (by hand) A retail...
MATH220 Lab04 Due Date: See ACE Excel File: Lab2204-182.xlsx 1 Question 1: (by hand) A retail establishment accepts either the American Express card or the VISA credit card. A total of 30% of its customers carry an American Express card, 70% carry a VISA card, and 20% carry both. a) Find the probability that a randomly selected customer carries at least one of the two credit cards. i) Draw a Venn diagram and shade the region corresponding to at least...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind of your average Argentine, who remembers the tough times and hyperinflation of the 1980s, the events of 2001 and 2002 have brought fiscal policy back to the forefront of public concern. Though the early 1990s may have been characterized by financial optimism, Argentina has been in a recession since Brazil's 1998 monetary crisis sent shockwaves across the regional and global markets. In early 2002,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT