A company is considering two different insurance policies to cover a specific risk. Policy A has an annual premium of $50,000 and covers up to $5,000,000 in damages, while Policy B has an annual premium of $80,000 and covers up to $8,000,000 in damages. The probability of a loss occurring that exceeds the coverage limit is estimated to be 5% for Policy A and 3% for Policy B. Assuming that the probability of a loss follows a normal distribution, which policy should the company choose based on expected value and expected loss?

a) Calculate the expected value of the loss for each policy.

b) Calculate the expected loss for each policy.

c) Based on the expected value and expected loss, which policy should the company choose?

Show all calculations and express your final answer as the name of the chosen policy. (20 marks)

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a The coefficient of variation CV is ... View the full answer