Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Given: Song owns a $300K house and has a 10% chance of experiencing a fire in any given year. Assume that only one fire per

Given: Song owns a $300K house and has a 10% chance of experiencing a fire in any given year. Assume that only one fire per year can occur and that if a fire occurs, the house is completely destroyed.

Problem:

Trevone, who owns the same type of house and faces the same probability distribution of losses as Song, also purchases full insurance for an actuarially fair premium from Lemonade Insurance Company. We assume that the two houses are independent of each other. In other words, if one house has a fire, this has no impact on the probability of the other house having a fire.

What is the probability distribution of total losses for Lemonade Insurance Company if they sell contracts to both Song and Trevone

What is the expected loss or expected payout for Lemonade Insurance Company if they sell contracts to both Song and Trevone

What is the amount of risk Lemonade Insurance Company faces if they sell contracts to both Song and Trevone

Briefly explain the benefit(s) to Lemonade Insurance Company as the number of insurance contracts sold increases? 

Step by Step Solution

3.34 Rating (163 Votes )

There are 3 Steps involved in it

Step: 1

Please ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business research methods

Authors: William G Zikmund, Barry J. Babin, Jon C. Carr, Mitch Griff

8th Edition

978-032432062, 0324320620, 1439080674, 978-1439080672

More Books

Students also viewed these Accounting questions

Question

costes ved cs otites gkis asesus widarw

Answered: 1 week ago

Question

What makes a decision support system successful?

Answered: 1 week ago

Question

=+a. Find the probability that both bids are successful.

Answered: 1 week ago