1. Suppose that an insurance company views Jennifer as having the following distribution for the present value of losses:

Loss = $5,000 with probability .10

$2,000 with probability .20

$1,000 with probability .50

$0 with probability .20

If Jennifer believes that her true probabilities for each possible loss outcome are 80% as

high as the insurer has estimated, what is the percentage loading on the policy from her

perspective? (Note: This means Jennifer believes her probability for $0 loss is .30)

• 20%

• 37.5%

• 120%

• 200%