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4. (10 points) Suppose that Manny's loss distribution is as follows: Xi Pi $5,000 0.01 2,000 0.04 1,000 0.15 0 0.8 Assum
Posted: Thu May 19, 2022 6:30 am
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- 4 10 Points Suppose That Manny S Loss Distribution Is As Follows Xi Pi 5 000 0 01 2 000 0 04 1 000 0 15 0 0 8 Assum 1 (94.97 KiB) Viewed 59 times
4. (10 points) Suppose that Manny's loss distribution is as follows: Xi Pi $5,000 0.01 2,000 0.04 1,000 0.15 0 0.8 Assume that the EXPENSE component of processing the claim is $500 regardless of the claim size. Ignoring moral hazard, adverse selection, the time value of money, and capital costs (PROFIT LOADING) – the cost of providing insurance is Premium= E(LOSS) + EXPENSE 2 scenarios: (1) NO DEDUCTIBLE, (2) $1,000 deductible How much money you can save if you choose policy with $1,000 deductible? What are the purposes of deductible?