Question
Consider two types of home insurance: theft insurance and hurricane insurance. Each year there is a 1% chance that the home will be robbed and
Consider two types of home insurance: theft insurance and hurricane insurance. Each year there is a 1% chance that the home will be robbed and a 1% chance that the home will be damaged by a hurricane. Suppose an insurance company writes 100,000 policies of each type for homeowners. The risk of earthquake is a type of common risk, while the risk of theft is independent across households. At the beginning of the year, the homeowner expects a 1% chance of placing a claim for either type of insurance. However, at the end of the year, thehomeowner will have either filled a claim (100%) or not (0%)
a. The standard deviation (%) of the claim for an individual homeowner in case of a hurricane. b. The standard deviation (expressed in percentage terms) of the claim for an individual homeowner in case of theft. c. The standard deviation of the percentage of claims for the insurance company in case of a hurricane. d. The standard deviation of the percentage of claims for the insurance company in case of theft.
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