Question
Hello, I wanted to know how to solve this problem, I have the answers but need an explanation please! 1.Rhoda Ruyner owns a $200,000 home
Hello, I wanted to know how to solve this problem, I have the answers but need an explanation please!
1.Rhoda Ruyner owns a $200,000 home and has a 2% chance of experiencing a loss that destroys her home in any given year. Assume that only one loss per year can occur and that if a loss occurs, her home is totally destroyed. Suppose that Rhoda purchases a full insurance contract from Acme Insurance for an actuarially fair premium. This contract would pay losses due to the total destruction of Rhoda's home. Assume that Rhoda's contract is the only insurance contract that Acme Insurance sold. What is the actuarially fair premium that Acme Insurance will charge Rhoda in the coming year? Show all calculations.
2.Wile E., who owns the same type of house and faces the same loss distribution as Rhoda in the question above, also purchases full insurance for an actuarially fair premium from Acme Insurance. We assume that the two houses are independent of one another. Show all calculations.
a.Create a probability distribution table of possible outcomes for Acme Insurance if Acme sells insurance to both Rhoda and Wile E.
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