If the probability of a house fire is 0.006, the cost of the thefire is...

If the probability of a house fire is 0.006, the cost of the the fire is $377631, the insurer’s loading costs are $26786, and the number of policies is 1860, then in a competitive insurance market, each policy will cost $____.

Expert Solution

Probability of fire = 0.006

Cost of fire = 377631

Number of policies = 1860

Total cost due to fire = 0.006 * 377631 * 1860 = 4214361.96

Insurer's loading costs = 26786

Cost of each policy = (4214361.96+26786)/1860 = 2280.19

Rahul Sunny answered 2 years ago

You own a house that is valued at $500,000. The probability of a house fire in...

You own a house that is valued at $500,000. The probability of a house fire in your area is 0.0002, and if a house fire happens, your home’s value will be reduced to $0. You are considering buying an insurance for your house. In case of fire, the insurance company will pay you $300,000. Ignore depreciation, taxes, etc. of your house in the following calculations. What is the expected values of your home without insurance and your home if the...

You own a house that is valued at $500,000. The probability of ahouse fire in...

You own a house that is valued at $500,000. The probability of a house fire in your area is 0.0002, and if a house fire happens, your home’s value will be reduced to $0. You are considering buying an insurance for your house. In case of fire, the insurance company will pay you $300,000. Ignore depreciation, taxes, etc. of your house in the following calculations. Suppose you are a risk-neutral person, what would be the most you are willing to...

If you have a 0.1% probability of having a fire in your house that completely destroys...

If you have a 0.1% probability of having a fire in your house that completely destroys your house (value post-fire =$0), and your house is worth $100,000, how much is the fair premium for fire insurance? $1 $10 $100 $1,000

Sarah’s house caught on fire. Through the prompt assistance of her neighbor Odessa, the fire was...

Sarah’s house caught on fire. Through the prompt assistance of her neighbor Odessa, the fire was quickly extinguished. In gratitude, Sarah promised to pay Odessa, $1000. Using IRAC determine whether Odessa enforce this promise?

A firm wants to purchase fire insurance for its main factory. The probability of a fire...

A firm wants to purchase fire insurance for its main factory. The probability of a fire in the factory without a fire-prevention program is 0.01; with a fire-prevention program the probability of a fire drops to 0.001. The fire-prevention programs costs $80 to run and a fire would result in a loss of $300,000. Suppose the firm is risk- neutral and the insurance company cannot observe whether or not it has implemented the fire-prevention program. Would the firm implement the...

Carl applies for fire insurance for his house. Before the application is processed, Carl’s house burns...

Carl applies for fire insurance for his house. Before the application is processed, Carl’s house burns down. Carl will have coverage if the insurance company Doesn’t find out about the fire until after the policy issues Chooses to accept the application Issued a binder Makes coverage retroactive

Fire Fighters A house in Pana, Illinois was found to be so infested with cockroaches, that...

Fire Fighters A house in Pana, Illinois was found to be so infested with cockroaches, that city council ordered fire fighters to burn it down rather than call in professional exterminators to deal with the problem. The town has three fire engines operating independently. The probability that a specific fire engine is available when needed is 0.96. (a) What is the probability that none are available when needed? (b) What is the probability that all three fire engine are available...

Beek’s house was destroyed by fire and claims were filed with the insurance company.

Beek’s house was destroyed by fire and claims were filed with the insurance company. The insurance company (insurer) hired James to investigate the fire as it was suspicious about the cause. Subsequently, the insurer denied the claims based on James’s report. Thompson sued the insurer and Cannon. Beek claimed to be a third party beneficiary of the James-insurer contract. Is Beek correct? If so what type of beneficiary is he and why?

(A) Three marksmen fire simultaneously and independently at a target. What is the probability of the...

(A) Three marksmen fire simultaneously and independently at a target. What is the probability of the target being hit at least once, given that marksman one hits a target nine times out of ten, marksman two hits a target eight times out of ten while marksman three only hits a target one out of every two times. (B) Fifty teams compete in a student programming competition. It has been observed that 60% of the teams use the programming language C...

#13. You own a house worth $250,000 and intend to insure it fully against fire for...

#13. You own a house worth $250,000 and intend to insure it fully against fire for the next year. Suppose the probability of its burning to the ground during the year is .0001 and that an insurance policy covering the full value costs $500. Consider the insurance policy as a security. a. What is the expected holding-period return? b. What is the standard deviation of it HPR c. Would you consider this policy to be a very risky asset? Why...

Question