KA hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such astorm is 5% per year.(a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these?(b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money?(c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live ordie independently of one another?(a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is. (Type an integer or a decimal.)(b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is.(Round to two decimal places as needed.)(c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that liveor die independently of one another?O A. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance.OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance.OC. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.

A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (...) (a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is (b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is (Round to two decimal places as needed.). (Type an integer or a decimal.) (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? OA. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance. OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance. C. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.

Holt Mcdougal Larson Pre-algebra: Student Edition 2012

1st Edition

ISBN:9780547587776

Author:HOLT MCDOUGAL

Publisher:HOLT MCDOUGAL

Chapter11: Data Analysis And Probability

Section11.8: Probabilities Of Disjoint And Overlapping Events

Problem 2C

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Related questions

Question

K
A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a
storm is 5% per year.
(a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these?
(b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money?
(c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or
die independently of one another?
(a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is. (Type an integer or a decimal.)
(b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is.
(Round to two decimal places as needed.)
(c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live
or die independently of one another?
O A. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance.
OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance.
OC. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.

Expert Solution

Step 1

Sol:-

(a) If the financial firm sells one hurricane bond for $62,000, then the firm loses money if a hurricane causes major damage in the certain country. The probability of this event is 5%, or 0.05. The face amount of the bond is $1 million, so the firm's loss would be $1 million - $62,000 = $938,000. The probability of the firm losing money is therefore:

P(loss) = P(hurricane) * (loss amount) + P(no hurricane) * (no loss)

P(loss) = 0.05 * $938,000 + 0.95 * $0 = $46,900

Therefore, the probability that the firm loses money is approximately $46,900 (rounded to the nearest dollar).