Question

In: Statistics and Probability

n insurance portfolio consists of two homogeneous groups of clients; N i, (i = 1 ,...

n insurance portfolio consists of two homogeneous groups of clients; N i, (i = 1 , 2) denotes the number of claims occurred in the ith group in a fixed time period. Assume that the r.v.'s N 1, N 2 are independent and have Poisson distributions, with expected values 200 and 300, respectively.

The amount of an individual claim in the first group is a r.v. equal to either 10 or 20 with respective probabilities 0.3 and 0.7, while the amount of an individual claim in the second group equals 20 or 30 with respective probabilities 0.1 and 0.9.

Let N be the total number of claims, and let S be the total aggregate claim.

Find E { S } and V a r { S }.

(Hint: Compute E { Y i } and E { Y i 2 } proceeding from the result of Question 10 and use Propositions 1-2 that we proved in class regarding E { S } and V a r { S } in the case where N is a Poisson r.v.)

Solutions

Expert Solution

The following images contain the complete solution. So check it out. Do leave a thumbs up if this helped.


Related Solutions

An insurance portfolio consists of two homogeneous groups of clients; N i, (i = 1 ,...
An insurance portfolio consists of two homogeneous groups of clients; N i, (i = 1 , 2) denotes the number of claims occurred in the ith group in a fixed time period. Assume that the r.v.'s N 1, N 2 are independent and have Poisson distributions, with expected values 200 and 300, respectively. The amount of an individual claim in the first group is a r.v. equal to either 10 or 20 with respective probabilities 0.3 and 0.7, while the...
Your investment portfolio consists of the following stocks                               &n
Your investment portfolio consists of the following stocks                                    Investment Portfolio Name Price Beta # shares Dow Chemical $      59.72 1.34 15,000 Walmart $      69.32 0.19 3,000 Boeing $   128.00 1.36 8,000 Verizon $      52.61 0.45 6,000 Consolidated Edison $      74.00 0.17 3,000 Caterpillar $      75.00 1.5 13,000 Deutsche bank $      22.55 1.4 9,000 a)      What is the portfolio beta? b)      What is the required return on the portfolio if the market return is 11 % and the risk free rate is...
1. A portfolio consists of two securities and the expected return on them is 11% and...
1. A portfolio consists of two securities and the expected return on them is 11% and 15% respectively. What is the return on this portfolio if the first security constitutes of 45% of the total portfolio? a) 13% b) 13.2% c) 12.8% d) 12.2% 2. Acme Dynamite Company’s common stock has a beta of 1.60. The expected return on the market is 9%, and the risk-free rate is 5%. What is the required return on Acme’s common stock according to...
We want to compare the weights of two independent groups of mice. Group 1 consists of...
We want to compare the weights of two independent groups of mice. Group 1 consists of 14 mice that were fed only cheese. Group 2 consists of 18 mice that were fed only walnuts. Group 1 information: sample mean x1-bar = 18 and sample standard deviation s1 = 4. Group 2 information: sample mean x2-bar = 15 and sample standard deviation s2 = 7. Perform a 2-sided hypothesis test of H0: mu1 = mu2 against H1: mu1 not equal to...
A portfolio consists of $15,000 in Stock M and $22,900 invested in Stock N. The expected...
A portfolio consists of $15,000 in Stock M and $22,900 invested in Stock N. The expected return on these stocks is 8.80 percent and 12.40 percent, respectively. What is the expected return on the portfolio? 11.69% 10.22% 10.98% 10.60% 9.37% You decide to invest in a portfolio consisting of 30 percent Stock A, 30 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability...
This is so hard especially the BETA portfolio I cannot calculate. Your investment portfolio consists of...
This is so hard especially the BETA portfolio I cannot calculate. Your investment portfolio consists of the following stocks                                    Investment Portfolio Name Price Beta # shares Dow Chemical $      59.72 1.34 15,000 Walmart $      69.32 0.19 3,000 Boeing $   128.00 1.36 8,000 Verizon $      52.61 0.45 6,000 Consolidated Edison $      74.00 0.17 3,000 Caterpillar $      75.00 1.5 13,000 Deutsche bank $      22.55 1.4 9,000 a)      What is the portfolio beta? b)      What is the required return on the portfolio if the...
Consider a homogeneous system of linear equations with m equations and n variables. (i) Prove that...
Consider a homogeneous system of linear equations with m equations and n variables. (i) Prove that this system is consistent. (ii) Prove that if m < n then the system has infinitely many solutions. Hint: Use r (the number of pivot columns) of the augmented matrix.
Consider a (homogeneous) product market comprising m sellers and n buyers, m>n>0. (i) Give an idea...
Consider a (homogeneous) product market comprising m sellers and n buyers, m>n>0. (i) Give an idea how one can model price determination in this market. (ii) Will the theoretical treatment change in the following cases (a) n>m>0 (b) n,m limit to infinity? Explain. {500 words}
Today is 1 July 2020. Joan has a portfolio which consists of two different types of...
Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2012 to create this portfolio and this portfolio is composed of 28 units of instrument A and 50 units of instrument B. Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030....
Today is 1 July 2020. Joan has a portfolio which consists of two different types of...
Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2012 to create this portfolio and this portfolio is composed of 28 units of instrument A and 50 units of instrument B. Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT