# Question: Suppose that Kate and Anne enter into a pooling arrangement

Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent.

$50,000 with probability of 0.005

$20,000 with probability of 0.01

$10,000 with probability of 0.02

$0 with probability of 0.965

a. Write out the possible outcomes and the probability of each outcome for Kate and Anne after they enter into a pooling arrangement. That is, writ out the probability distribution for each of the women after they enter into a pooling arrangement.

b. Calculate the expected loss to each person prior to and subsequent to entering into a pooling arrangement.

c. What happens to the standard deviation of the distribution of losses to each individual subsequent to the pooling arrangement?

$50,000 with probability of 0.005

$20,000 with probability of 0.01

$10,000 with probability of 0.02

$0 with probability of 0.965

a. Write out the possible outcomes and the probability of each outcome for Kate and Anne after they enter into a pooling arrangement. That is, writ out the probability distribution for each of the women after they enter into a pooling arrangement.

b. Calculate the expected loss to each person prior to and subsequent to entering into a pooling arrangement.

c. What happens to the standard deviation of the distribution of losses to each individual subsequent to the pooling arrangement?

## Answer to relevant Questions

Leland Manufacturing uses 10 units of part KJ37 each month in the production of radar equipment. The accountant says that Leland’s cost for manufacturing each unit of KJ37 is as presented below.Direct materials ...A boat company currently sells motor boats for $6,000. It has costs of $4,650. A competitor is bringing a new motor boat to the market that will sell for $5,500. Management believes it must lower the price to $5,500 to ...Compare and contrast the AICPA’s Code of Professional Conduct and the IFAC Code of Ethics for Professional Accountants. An unfair coin has a probability of coming up heads of 0.65. The coin is flipped 50 times. What is the probability it will come up heads 25 or fewer times? (Give answer to at least 3 decimal places).Indicate whether each of the following statements are true or false and give the reason.(a) A firm should stop expanding output after reaching diminishing returns (b) If large and small firms operate in the same industry, we ...Post your question