EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 11, Problem 12QP
Summary Introduction
To discuss: Whether person X hope the index D in 2016 to be extra or fewer probable to change up or down by additional than 40 points in a day than in 2009.
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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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