Question: 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

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?

Step by Step Solution

★★★★★

3.28 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a X P X 50000 0005 20000 001 10000 002 0 0965 b X P X ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

68-B-E-M-E (2168).xlsx

300 KBs Excel File

Students Have Also Explored These Related Economics Questions!

Ling Corporation decided to acquire all of Huang Corporation's voting common stock on January 1, 2017. The purchase price consisted of $10,000 for the registering and issuing of 10,000 shares of Ling...

What happens to the standard deviation of p as the sample size increases? If the sample size is increased by a factor of 4, what happens to the standard deviation of p?

Suppose two dice are rolled. Assume that each possible outcome has probability 1/36. Let A be the event that the sum of the two dice is greater than or equal to 8, and let B be the event that at...

Assume that the probability of breast cancer equals .01 for women in the 50-59 age group. Furthermore, if a women does have breast cancer, the probability of a true positive mammogram (correct...

Part I Loss Pooling Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent. Loss = $50,000 with...

Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent. Loss = $40,000 with probability 0.02 $5,000...

Part I Loss Pooling Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent. = Loss = $50,000 with...

1) Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are independent. Loss Probability $50,000 0.005 $20,000...

A long essay with a detailed analysis of Airbus and Boeing as examples, who have improved their supply chain by coordination and collaboration. Explain how the collaboration worked in detail. Include...

Pooling Assignment (Make sure you show your work!) Suppose that Kate and Anne enter into a pooling arrangement. Assume that both women have the following loss distributions and that losses are...

A plane flying horizontally at an altitude of 1 mi and a speed of 540 mi/h passes directly over a radar station. Find the rate at which the distance from the plane to the station is increasing when...

The lattice enthalpy (formation of ionic solid from ions in the gas phase) for AgCl(s) is -916 kJ/mol and the hydration enthalpy (dissolution of gaseous ions into water) is 850 kJ/mol. How much heat...

Self Check: Page 1 Line 2 2 : $ 5 7 , 1 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -...

Multiple Choice Question 1. If average total assets increase, but net income, net sales, and average stockholders equity remain the same, what is the impact on the return on assets ratio? a....

Multiple Choice Question 1. Sales discounts with terms 2/10, n/30 mean: a. 10 percent discount for payment within 30 days. b. 2 percent discount for payment within 10 days, or the full amount (less...

Manti Company had the following account balances on its balance sheet at December 31, 2011, the end of its first year of operations. All stock was issued on a subscription basis. Common stock...

Squires Inc. was organized on January 2, 2010, with authorized capital stock consisting of 40,000 shares of 10%, $200 par value preferred, and 300,000 shares of no-par, no stated value common. During...

1. On January 2, 2012, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are...

Which of the following statements concerning an accountants disclosure of confidential client data is generally correct? a. Disclosure may be made to any state agency without subpoena. b. Disclosure...

What would the stock price be if its dividends were expected to have zero growth? Discuss.

Now assume that Bon Temps is expected to experience nonconstant growth of 30% for the next 3 years, then return to its long-run constant growth rate of 6%. What is the stocks value under these...

Suppose Bon Temps is expected to experience zero growth during the first 3 years and then resume its steady-state growth of 6% in the fourth year. What would be its value then? What would be its...

The Landers Corporation needs to raise $1.90 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 10 percent. Twenty five thousand dollars in out-of-pocket...

QUESTION 1 A neo-mercantilis policy would strategy would promote -- Boosting exports and limiting imports. Boosting imports and limiting exports. The equal distribution of imports and exports....

Question 4 (1 point) Saved A public corporation wants to value a privately held company. The pure play approach has been used to determine that the appropriate risk-adjusted weighted average cost of...