Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 7CQ
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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
Chapter 12 Solutions
Corporate Finance
Ch. 12 - Prob. 1CQCh. 12 - Prob. 2CQCh. 12 - Prob. 3CQCh. 12 - Prob. 4CQCh. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQCh. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ
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