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)

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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

orchestra answered 2 years ago

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