Exam P Practice Question 2
Study guide: Exam P-1
This year, losses on a block of policies are uniformly distributed on the interval (0, 10{,}000). For each loss, the insurer pays the amount of the loss in excess of a deductible of 1,000, up to a maximum payment of 6,000.
Next year, every loss will be 20% larger than this year, so losses will be uniformly distributed on (0, 12{,}000). The deductible and the maximum payment will not change.
Calculate the percentage increase in the insurer's expected payment per loss from this year to next year.
- A) 9.0%
- B) 11.1%
- C) 20.0%
- D) 24.5%
- E) 42.9%
Answer this question and see the worked solution
Concepts tested
- Insurer
- Inflation
- Deductible
- Benefit Limit
- Payment Random Variable
- Uniform Continuous Distribution
- Expected Value