The Statewide Auto Insurance Company developed the following probability distribution for automobile collision claims paid during the past year:

Payment($)_____________________Probability
0............................................................... 0.83
500........................................................... 0.06
1,000.......................................................  0.05
2,000........................................................  0.02
5,000........................................................  0.02
8,000.........................................................  0.01
10,000.......................................................  0.01

a. Set up a table of intervals of random numbers that can be used with a VLOOKUP to generate automobile collision claim payments.
b. Construct a simulation model to estimate the mean and standard deviation of claims payments. How accurate are these estimates? Compare them to the analytical calculation of the mean,

How can we improve the accuracy of the simulation estimates?

Transcribed Image Text:

u = x1 X P(x = x1) + x, × P(x = x,) + … x, × P(x = xn), and standard deviation, Vo = (x1 – µ) × P(x = x) + (x2 - H)? × P(x = x2) + (X, – µP × P(x = xn)(xn – µ)² × P(x = x,).