Exam P Practice Problem 29 – Expected Insurance Payment

Problem 29A

When there is a loss due to fire damage to a house, the loss follows the distribution indicated below.

            \displaystyle \begin{bmatrix} \text{Loss Amount}&\text{ }&\text{Probability}  \\\text{ }&\text{ }&\text{ } \\ 5,000&\text{ }&0.5  \\ 10,000&\text{ }&0.3  \\ 50,000&\text{ }&0.1  \\ 75,000&\text{ }&0.05  \\ 100,000&\text{ }&0.03  \\ 150,000&\text{ }&0.015 \\ 200,000&\text{ }&0.005   \end{bmatrix}

The owner of the house purchases an insurance policy with a deductible of 5,000 to insure againse this loss. What is the expected payment to the owner under this policy.

      A. \ \ \ \ \ \text{15,000}
      B. \ \ \ \ \ \text{15,500}
      C. \ \ \ \ \ \text{20,500}
      D. \ \ \ \ \ \text{31,000}
      E. \ \ \ \ \ \text{30,000}

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Problem 29B
Use the same information as in Problem 29A. What is the standard deviation of the payment to the owner under this insurance policy?

      A. \ \ \ \ \ \text{29,541.49}
      B. \ \ \ \ \ \text{30450.18}
      C. \ \ \ \ \ \text{31,480.15}
      D. \ \ \ \ \ \text{35,597.34}
      E. \ \ \ \ \ \text{38,749.19}

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Answers

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\copyright \ 2013

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