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Please help me with the following question. Thank you very much. Find fair premium for an insurance product that provide coverage of a risky event
Please help me with the following question. Thank you very much.
Find fair premium for an insurance product that provide coverage of a risky event with the following loss distribution. Round to two decimal places when calculating your answer. (6 points)
Loss amount ($) | Probability |
100,000 | 0.02 |
20,000 | 0.05 |
5,000 | 0.1 |
0 | 0.83 |
The insurance has a deductible of $5,000. The underwriting costs are 20% of pure premium, claims are paid at end of year, the interest rate is 10%, and claim processing costs are $5,000. The fair profit loading is 5% of pure premium.
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