1.Loss distribution:

$20,000 with pr 0.01 = 200

$1,000 with pr 0.07 = 70

Loss:$250 with pr 0.12 = 30

$ 0 with pr 0.80 = 0

Assume that the only administrative cost is the cost of processing a claim, which equals $500. Assume no moral hazard, adverse selection, the time value of money, and capital costs. Insurance price is the sum of expected claim costs and expected claim processing costs.

A.Calculate the Fair Premium.

B.Calculate the Premium with a $250 deductible and 20% coinsurance.