Question
In: Statistics and Probability
Suppose every driver faces a 1% probability of an automobile accident every year. An accident will,...
Suppose every driver faces a 1% probability of an automobile accident every year. An accident will, on an average cost each driver $10,000. Suppose there are two types of individuals: those with $60,000 and those with $5,000 in the bank. Assume that individuals with $5,000 in the bank declare bankruptcy if they get in an accident. In the bankruptcy, creditors receive only what individuals have in the bank. What price are individuals with $5,000 in the bank willing to pay for the insurance? Will those with $5,000 in the bank voluntarily purchase insurance? (Remember that there are state laws forcing individuals to purchase auto liability insurance.) What is the expected cost of the insurance company of insuring the automobile? 100
Q17. In event of an accident, what will be the total loss of individuals with $60,000 in the bank if they don’t buy insurance? (600 is a wrong answer)
Q18. In event of an accident, what will be the total loss of individuals with $5,000 in the bank if they don’t buy insurance? (50 is a wrong answer)
(please just answer 17&18)
Solutions
orchestra answered 1 year agoRelated Solutions
Suppose that every driver faces a 4% probability of an automobile accident every year. An accident...
Suppose that every driver faces a 4% probability of an
automobile accident every year. An accident will, on average, cost
each driver $13,000. Suppose there are two types of individuals:
those with $104,000.00 in the bank and those with $6,500.00 in the
bank. Assume that individuals with $6,500.00 in the bank declare
bankruptcy if they get in an accident. In bankruptcy, creditors
receive only what individuals have in the bank. Assume that both
types of individuals are only slightly risk...
Suppose that every driver faces a 4% probability of an automobile accident every year. An accident...
Suppose that every driver faces a 4% probability of an
automobile accident every year. An accident will, on average, cost
each driver $7,000. Suppose there are two types of individuals:
those with $56,000.00 in the bank and those with $3,500.00 in the
bank. Assume that individuals with $3,500.00 in the bank declare
bankruptcy if they get in an accident. In bankruptcy, creditors
receive only what individuals have in the bank. Assume that both
types of individuals are only slightly risk...
Suppose that every driver faces a 2% probability of an automobile accident every year.
4. Individual Problems 20-4Suppose that every driver faces a 2% probability of an
automobile accident every year. An accident will, on average, cost
each driver $13,000. Suppose there are two types of individuals:
those with $78,000.00 in the bank and those with $3,250.00 in the
bank. Assume that individuals with $3,250.00 in the bank declare
bankruptcy if they get in an accident. In bankruptcy, creditors
receive only what individuals have in the bank. Assume that both
types of individuals are...
16 . Individual Problems 20-4 Suppose that every driver faces a 5% probability of an automobile...
16 . Individual Problems 20-4
Suppose that every driver faces a 5% probability of an
automobile accident every year. An accident will, on average, cost
each driver $14,000. Suppose there are two types of individuals:
those with $84,000.00 in the bank and those with $3,500.00 in the
bank. Assume that individuals with $3,500.00 in the bank declare
bankruptcy if they get in an accident. In bankruptcy, creditors
receive only what individuals have in the bank. Assume that both
types of...
What is the probability a driver will be taken the hospital this year (as a result of an accident)?
In any given year, an insurance company believes the
following:
-0.6 of drivers are safe.
-0.25 of safe drivers wear seatbelts
-0.10 of unsafe drivers wear seatbelts
-0.10 of safe drivers experience an accident in a year
-0.20 of unsafe drivers experience an accident in a year
-Given a driver experiences an accident, the driver has
probability 0.01 they will be taken to the hospital if they were
wearing a seatbelt
-Given a driver experiences an accident, the driver has...
You are a relatively safe driver. The probability that you will have an accident is only...
You are a relatively safe driver. The probability that you will
have an accident is only 1 percent. If you do have an accident, the
cost of repairs and alternative transportation would reduce your
disposable income from $120,000 to $60,000. Auto collision
insurance that will fully insure you against your loss is being
sold at a price of $0.10 for every $1 of coverage. You are
considering two alternatives: buying a policy with a $1,000
deductible that essentially provides just...
An automobile insurance company has determined the accident rate (probability of having at least one accident...
An automobile insurance company has determined the accident
rate (probability of having at least one accident during a year)
for various age groups (see Table). Suppose that a policyholder
calls in to report an accident. What is the probability that he or
she is over 60?
over 60 - proportion of total insured .10 & accident rate
=0.06 (erased on table and could not add it back on accident )
What is the the probability that he or she is...
Assume that an uncle of yours was injured on 1/1/17 in an automobile accident. The accident...
Assume that an uncle of yours was injured on 1/1/17 in an
automobile accident. The accident was serious, and it was the other
driver's fault. As the result of the accident, your uncle is not
able to return to his medical practice where he earned $280,000
during calendar year 2016. Your uncle's accident occurred on his
60th birthday (some birthday) and he planned (prior to the
accident) to work another eight years (until the end of 2024).
Your uncle has...
Suppose that the dollar amount of damage involved in an automobile accident is an exponential random...
Suppose that the dollar amount of damage involved in an
automobile accident is an exponential random variable X with mean
$1000.
(a) What is the probability that the amount of an accident
exceeds $400?
(b) If the deductible is $400, that means, the insurance company
only pays the amount exceeding $400. What is the expected value of
the amount that the insurance company pays per accident?
Assume that a driver faces the following loss distribution: Loss 10,000 0 Probability .04 .96 These...
Assume that a driver faces the following loss distribution:
Loss 10,000 0
Probability .04 .96
These two drivers decide to pool their losses with two other
drivers with the same loss distribution, and all losses are not
correlated, i.e., independent.
6. What is the expected loss for each member of the pool?
7. What is the standard deviation of loss for each member of the
pool?
Now consider another group of four drivers who have formed a
separate pool, and...
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