In any year, the weather can inflict storm damage to a home. From year to year, the damage is random. Let Y denote the dollar value of damage in any given year. Suppose that in 95% of the years Y = 0, but in 5% of the years Y = 20,000. a. What is the mean of the damage in any year? b. What is the standard deviation of the damage in any year? c. Consider an “insurance pool” of 100 people who homes are sufficiently dispersed so that, in any year, the damage to different homes can be viewed as independently distributed random variables. What is the probability that ? exceeds $2000?

In any year, the weather can inflict storm damage to a home. From year to year, the damage is random. Let Y denote the dollar value of damage in any given year. Suppose that in 95% of the years Y = 0, but in 5% of the years Y = 20,000. a. What is the mean of the damage in any year? b. What is the standard deviation of the damage in any year? c. Consider an “insurance pool” of 100 people who homes are sufficiently dispersed so that, in any year, the damage to different homes can be viewed as independently distributed random variables. What is the probability that ? exceeds $2000?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.2IP

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