t Lemonade Insurance Company charge each of Rainie anc break even'? e this contract if she is charged the 'break-even' premium? V ontact if he is charged the 'break-even' premium? Briefly of risk Lemonade Insurance Company faces if they sell inie and Ben?

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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Answer a, b, and c
3.
Now suppose Ben owns a $600,000 house and has an 8% chance of experiencing a fire in
any given year. Assume as before that the fire will result in a total loss. Suppose the
Lemonade Insurance Company offers Rainie and Ben the same insurance contract and
charges them the same premium. In other words, they put Rainie and Ben into the same
risk pool.
a.
What is the probability distribution of total losses for Lemonade Insurance
Company if they sell contracts to Rainie and Ben?
b.
What premium must Lemonade Insurance Company charge each of Rainie and
Ben if they want to 'break even'?
C.
Will Rainie purchase this contract if she is charged the 'break-even' premium? Will
Ben purchase this contact if he is charged the 'break-even' premium? Briefly
explain your reason.
d.
What is the amount of risk Lemonade Insurance Company faces if they sell
contracts to both Rainie and Ben?
Transcribed Image Text:3. Now suppose Ben owns a $600,000 house and has an 8% chance of experiencing a fire in any given year. Assume as before that the fire will result in a total loss. Suppose the Lemonade Insurance Company offers Rainie and Ben the same insurance contract and charges them the same premium. In other words, they put Rainie and Ben into the same risk pool. a. What is the probability distribution of total losses for Lemonade Insurance Company if they sell contracts to Rainie and Ben? b. What premium must Lemonade Insurance Company charge each of Rainie and Ben if they want to 'break even'? C. Will Rainie purchase this contract if she is charged the 'break-even' premium? Will Ben purchase this contact if he is charged the 'break-even' premium? Briefly explain your reason. d. What is the amount of risk Lemonade Insurance Company faces if they sell contracts to both Rainie and Ben?
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