An insurance company will sell a fire insurance policy for a house similar to mine for $1000 (for one year of protection). if there is not a fire at my house this year, the insurance company has made a $1000 profit. their experience indicates that there is a .001 probability that I will have a "total"" loss fire costing them $301,000 (meaning that they collected $1000 from me at the beginning of the year, and paid $301,000 to rebuild my home and replace loss contents during th year - a huge loss for them). there is a 1% chance that I'll have a "small" fire which will casuse $41,000 in damages. Suppose that these are the only possible outcomes in this simplified example.Fill in this table to help you answer the questions below. d) the mean shows that writing many fire insurance policies like this is good business for the insurance company, explain why. e) the standard deviation provides some indication as to why it would be a bad idea for me to insure someone's home myself in the same manner that the insurance company provides protection against financial loss from a fire. Explain why.
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
An insurance company will sell a fire insurance policy for a house similar to mine for $1000 (for one year of protection). if there is not a fire at my house this year, the insurance company has made a $1000 profit. their experience indicates that there is a .001 probability that I will have a "total"" loss fire costing them $301,000 (meaning that they collected $1000 from me at the beginning of the year, and paid $301,000 to rebuild my home and replace loss contents during th year - a huge loss for them). there is a 1% chance that I'll have a "small" fire which will casuse $41,000 in damages. Suppose that these are the only possible outcomes in this simplified example.
Fill in this table to help you answer the questions below.
d) the mean shows that writing many fire insurance policies like this is good business for the insurance company, explain why.
e) the standard deviation provides some indication as to why it would be a bad idea for me to insure someone's home myself in the same manner that the insurance company provides protection against financial loss from a fire. Explain why.
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