Assume that four business owners each own an identical Assume that four business owners each own an identical storage building valued at 600,000$. Assume that there is a 3% chance in any year each building will be destroyed by a peril (fire) and that a loss to any of the buildings is an independent event. Assuming that: (1) Fire events are independent of each other (2) Each building faces the same types of risks and environmental conditions. Given that, Answer the following questions: A. Use the compound probability of independent events law to find the sample space of the probability of each possible event B. Find the expected annual loss for each of the insureds. C. Find the risk of incurrence of losses (Std dev) D. Explain what happens to the objective risk with the addition of more individuals E. Explain what happens to the expected loss with the addition of more individuals F. Explain the importance of the law of large numbers to predict expected losses.
Compound Probability
Compound probability can be defined as the probability of the two events which are independent. It can be defined as the multiplication of the probability of two events that are not dependent.
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Probability theory is a branch of mathematics that deals with the subject of probability. Although there are many different concepts of probability, probability theory expresses the definition mathematically through a series of axioms. Usually, these axioms express probability in terms of a probability space, which assigns a measure with values ranging from 0 to 1 to a set of outcomes known as the sample space. An event is a subset of these outcomes that is described.
Conditional Probability
By definition, the term probability is expressed as a part of mathematics where the chance of an event that may either occur or not is evaluated and expressed in numerical terms. The range of the value within which probability can be expressed is between 0 and 1. The higher the chance of an event occurring, the closer is its value to be 1. If the probability of an event is 1, it means that the event will happen under all considered circumstances. Similarly, if the probability is exactly 0, then no matter the situation, the event will never occur.
Assume that four business owners each own an identical Assume that four business owners each own an identical storage building valued at 600,000$. Assume that there is a 3% chance in any year each building will be destroyed by a peril (fire) and that a loss to any of the buildings is an independent
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