FOUND.OF FINANCIAL MANAGEMENT-ACCESS
17th Edition
ISBN: 9781260519969
Author: BLOCK
Publisher: MCG
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Question
Chapter 1, Problem 9DQ
Summary Introduction
To explain: The reason that profit maximization inappropriate as well as the meaning of wealth maximization.
Introduction:
Profit maximization:
It refers to a situation in which the firm wants to attain a certain level of output with a given level of input that may lead to the maximum level of profits.
Wealth maximization:
It is a concept that focuses on the overall development of the business and not just increasing the level of profit.
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Question 6
A five-year $50,000 endowment insurance for (60) has $1,000 underwriting expenses, 25% of the first
premium is commission for the agent of record and renewal expenses are 5% of subsequent premiums.
Write the gross future loss random variable:
Presuming a portfolio of 10,000 identical and independent policies, the expected loss and the variance
of the loss of the portfolio are given below (note that the premium basis is not given or needed):
E[L] = 10,000(36,956.49 - 3.8786P)
V[L] 10,000 (50,000 + 14.52P)². 0.00095
Find the premium that results in a 97.5% probability of profit (i.e. ¹ (0.975) = 1.96).
Premium:
Please show your work below
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