Suppose that Georges insurer views him as having the following loss distribution:

Loss = $6000000 with a probability of 0.01

$100000 with a probability of 0.02

$30000 with a probability of 0.03

$0 with a probability of 0.94

Claim payments are not expected to be paid until one year after the premium is received, the interest rate is 5% and the competitive loading equals 15% of expected claim costs.

(a). What is the loading on the insurance policy from the insurer's perspective?

(b). Suppose that Georges believes that her true probabilities for each possible loss outcome are half as high as the insurer has estimated. What is the loading on the insurance policy from Georges perspective? (Note: This means Georges believes his probability for $0 loss is .97)