In any year, the weather can inflict storm damage to a home. From year to year, the damage is random. Let Y denote the dollar value of damage in any given year. Suppose that in 95% of the years Y = 0, but in 5% of the years Y = 20,000. a. What is the mean of the damage in any year? b. What is the standard deviation of the damage in any year? c. Consider an “insurance pool” of 100 people who homes are sufficiently dispersed so that, in any year, the damage to different homes can be viewed as independently distributed random variables. What is the probability that ? exceeds $2000?
In any year, the weather can inflict storm damage to a home. From year to year, the damage is random. Let Y denote the dollar value of damage in any given year. Suppose that in 95% of the years Y = 0, but in 5% of the years Y = 20,000. a. What is the mean of the damage in any year? b. What is the standard deviation of the damage in any year? c. Consider an “insurance pool” of 100 people who homes are sufficiently dispersed so that, in any year, the damage to different homes can be viewed as independently distributed random variables. What is the probability that ? exceeds $2000?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In any year, the weather can inflict storm damage to a home. From year to year, the
damage is random. Let Y denote the dollar value of damage in any given year.
Suppose that in 95% of the years Y = 0, but in 5% of the years Y = 20,000.
a. What is the mean of the damage in any year?
b. What is the standard deviation of the damage in any year?
c. Consider an “insurance pool” of 100 people who homes are sufficiently
dispersed so that, in any year, the damage to different homes can be viewed as
independently distributed random variables. What is the probability that ?
exceeds $2000?
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