Two individuals have different unemployment risk. Individual A has a probability of 10% of being unemployed for 4 months, while individual B has a probability of 5% of being unemployed for 4 months. Both individuals will lose 10000 dollars during this four months. If individuals become unemployed, 55% of their lost earnings will be replaced.

If an actuarially fair premium was to be charged, what annual premium would each worker be charged? Show your calculations.

Answer rating: 100% (QA)

To calculate the annual premium for each worker we need to consider the expected value of the insura... View the full answer