Suppose a $50,000 annual loss occurs randomly with a probability of one in one hundred. a....

Suppose a $50,000 annual loss occurs randomly with a probability of one in one hundred.

a. What is the actuarially fair premium? If the insurance company charges $750 per person per year, what is the loading factor?

b. Assume the insurance company has 100 people in the pool and the insurance company is charging $750 per person per year. If one person in the pool suffers from the loss, will the insurance company be able to pay for the loss?

c. Assume the insurance company has 100 people in the pool and the insurance company is charging $750 per person per year. If two people in the pool suffer from the loss, will the insurance company be able to pay the losses?

d. What happens to the variability of the expected value of a loss as the number of people in the group increases?

Expert Solution

Rahul Sunny answered 2 years ago

The probability that a randomly selected person is left-handed is 0.1. Suppose we are to randomly...

The probability that a randomly selected person is left-handed is 0.1. Suppose we are to randomly select 10 people. Let X be the number of people selected out of the 10 that are left-handed. Find the following probabilities: (a) P(X = 2) = (b) P(X ≤ 2) = (c) P(X > 2) =

Suppose that a typhoon occurs each year with a probability 1/12 and that a typhoon will...

Suppose that a typhoon occurs each year with a probability 1/12 and that a typhoon will destroy bananas from exactly half the farmers who choose to plant in a particular year. Calculate the expected profit of each farmer (including the planting costs) if exactly 110 farmers enter the market, and each chooses to plant 12,500 kgs of bananas. Explain why you would expect additional farmers to enter the market when typhoons are possible. Discuss what this implies for equilibrium prices...

One hundred randomly selected subjects from 51,048 subjects were interviewed as a part of the California...

One hundred randomly selected subjects from 51,048 subjects were interviewed as a part of the California Health Interview Survey. The table below was constructed from the responses of the 100 subjects. Use a 0.05 significance level to test the claim that for California adults, exercise is independent of gender. Have you exercised vigorously in the last 7 days? YES NO MALE 13 34 FEMALE 15 38

Consider the following car insurance problem. A car accident occurs with probability 1/36. The loss from...

Consider the following car insurance problem. A car accident occurs with probability 1/36. The loss from the accident is $4,000. The price of the coverage is $150. Should a wealthy person purchase the coverage?

Suppose an individual has a job that pays $50,000/year. With a 5% probability, next year their...

Suppose an individual has a job that pays $50,000/year. With a 5% probability, next year their wage will be reduced to $20,000/year. a. What is their expected next year? b. Suppose that the individual can insure themselves against the risk of reduced consumption next year. What would be the actuarially fair insurance premium?

#18 Events A and B are mutually exclusive. Suppose event occurs with probability 0.05 and event...

#18 Events A and B are mutually exclusive. Suppose event occurs with probability 0.05 and event occurs with probability 0.36. a. Compute the probability that B occurs or does not occur (or both). b. Compute the probability that either occurs without occurring or occurs without occurring. (If necessary, consult a list of formulas.) ? #19 Events and are mutually exclusive . Suppose event occurs with probability 0.11 and event B occurs with probability 0.81. If does not occur, what is...

Suppose that jurors are selected randomly from an adult population. What is the probability that all...

Suppose that jurors are selected randomly from an adult population. What is the probability that all 12 jurors are white when 67% of the population is white? Round you answer to three decimal places.

1. Suppose there is a 12.5% probability that a randomly selected person aged 35 years or...

1. Suppose there is a 12.5% probability that a randomly selected person aged 35 years or older is a smoker. In addition, there is a 11.9% probability that a randomly selected person aged 35 years or older is female, given that he or she smokes. What is the probability that a randomly selected person aged 35 years or older is female and smokes? 2. For the month of May in a certain city, 71% of the days are cloudy. Also...

Suppose your annual income is $50,000 and your lender will allow you to have a mortgage...

Suppose your annual income is $50,000 and your lender will allow you to have a mortgage payment that is no more than 33% of your monthly income after making other debt payments and paying property taxes, which in your case amount to $500 per month. If the current 30-year mortgage rate is 5%, approximately how large a mortgage can you qualify for (assuming you have the required cash for the necessary down payment)? a. $160,000 b. $161,000 c. $162,000 d....

Suppose we have one hundred different firms emitting pollution. The Ministry of the Environment and Natural...

Suppose we have one hundred different firms emitting pollution. The Ministry of the Environment and Natural Resource (MOENR) currently regulates these firms by requiring specific pollution control equipment to be installed by each firm. The MOENR is considering issuing tradable permits to each firm indicating how much pollution the firm may emit. Permits will reduce pollution in the same amount as the technology regulation. Discuss the implication of switching to tradable permits on the likelihood of seeing research and development...

Question