Question
In: Statistics and Probability
An insurance company insures large number of independent individual houses. The expected average loss for each...
An insurance company insures large number of independent
individual houses. The expected
average loss for each house for 1 year period is $600, and the
standard deviation of the average
loss is $100. Let us assume that the average loss follows the
normal distribution. Using
Normdist() function in Excel, calculate the probability that the
average loss will exceed $850 (show the detailed steps)
Solutions
Expert Solution
Given,
Mean = 600 , Standard deviation = 100
We have to calculate P(X > 850) = ?
P(X > 850) = 1 - P(X < 850)
= 1 - NORM.DIST ( x , mean , sd , cumulative) [ Using EXCEL function ]
= 1 - NORM.DIST ( 850 , 600 , 100 , TRUE )
= 1 - 0.9938
= 0.0062
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