How to Calculate Probability for Sale of Wind Insurance
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A company examines homeowners records and sees that the mean loss from wind annually is $250 per house with std dev of $1000. They plan to sell wind insurance for $250 + estimates coverage costs & profits.
i) If they sell 10,000 policies, what is the probability that annual average loss is greater than $275?
ii) What shape would the loss distribution per home to be and why?
iii) Why it would be unwise to sell 12 policies or less.
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This solution helps calculate probability for sale of wind insurance.
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How to calculate probability
A company examines homeowner's records and sees that the mean loss from wind annually is $250 per house with std dev of $1000. They plan to sell wind insurance for $250 + estimates coverage costs & profits.
i) If they sell 10,000 policies, what is the probability that annual average loss is greater than $275?
In this problem, since we know the mean and standard deviation of the population from which the sample of 10,000 was taken, we know the distribution of the sample mean (by the central limit theorem). We then use the distribution of the ...
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