Question
The probabilities of the following three possibilities to a house is given below: Event Loss Probability No Loss 0 90% Small Loss 5,000 8% Large
The probabilities of the following three possibilities to a house is given below:
Event Loss Probability
No Loss 0 90%
Small Loss 5,000 8%
Large Loss 50,000 2%
a. Calculate the expected value and standard deviation if the owner does not have any pooling.
b. Illustrate the expected value/standard deviation if two owners of similar properties pool their losses.
c. What is the expected value and standard deviation if 1,000 owners decided to pool their losses.
Step by Step Solution
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Step: 1
Analyzing Loss Probabilities and Risk Pooling a Single Owner No Pooling Expected Value EX X PX EX 0 ...
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Intermediate Financial Management
Authors: Brigham, Daves
10th Edition
978-1439051764, 1111783659, 9780324594690, 1439051763, 9781111783655, 324594690, 978-1111021573
