Question

The insurance company expects that all claims will double. What will this do the average and variance of claims paid?

	A.	The mean will be unchanged, the variance will double
	B.	The mean will double, the variance will be unchanged
	C.	The mean will increase four times, the variance will double
	D.	The mean will double, the variance will increase four times

Answer 1

x = no. of claims

we want to find for 2x

we have a=2 , b=0

therefore

E(x) = mean of x

E(2x) = 2*E(x) : mean will double

var(2x) = (2^2)*var(x) = 4 var(x) : variance becomes 4 times

answer : D. The mean will double, the variance will increase four times