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A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (...) (a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is (b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is (Round to two decimal places as needed.). (Type an integer or a decimal.) (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? OA. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance. OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance. C. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.

A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (...) (a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is (b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is (Round to two decimal places as needed.). (Type an integer or a decimal.) (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? OA. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance. OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance. C. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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K A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is. (Type an integer or a decimal.) (b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is. (Round to two decimal places as needed.) (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? O A. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance. OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance. OC. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.
Transcribed Image Text:K A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $62,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $62,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (a) If a financial firm sells these bonds for $62,000, the probability that the firm loses money if it only sells one of these is. (Type an integer or a decimal.) (b) If the firm sells 1,000 of these policies, each for $62,000, the probability that it loses money is. (Round to two decimal places as needed.) (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? O A. The life insurance firm has independent customers. Hurricane bonds are also independent but more risky than life insurance. OB. The life insurance firm has independent customers. Hurricane bonds are dependent and more risky than life insurance. OC. The life insurance firm has independent customers. Hurricane bonds are dependent and less risky than life insurance.
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(a) If the financial firm sells one hurricane bond for $62,000, then the firm loses money if a hurricane causes major damage in the certain country. The probability of this event is 5%, or 0.05. The face amount of the bond is $1 million, so the firm's loss would be $1 million - $62,000 = $938,000. The probability of the firm losing money is therefore:

P(loss) = P(hurricane) * (loss amount) + P(no hurricane) * (no loss)

P(loss) = 0.05 * $938,000 + 0.95 * $0 = $46,900

Therefore, the probability that the firm loses money is approximately $46,900 (rounded to the nearest dollar).

 

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