7. Insurance Pricing (15 pts.) Use the information in the table below to answer
ID: 2600952 • Letter: 7
Question
7. Insurance Pricing (15 pts.) Use the information in the table below to answer the following questions and fill in all missing values in the table Show all of vour work. Crop insurance analysts have determined the likelihood of the following possible yield, price, and revenue outcomes for soybean production in Ilinois: Soybean Yield SoybeanSoybeanYield ue Insuran Value Revenue Weather ProbabilityConditions Price Revenue ce Insurance os(bushels/acre) (S/bushel (S/acre) $500.00 $540.00 $575.00 $605.00 $660.00 $630.00 $600.00 Value Drought (very dry) Dry Flooding (very wet) Wet 0.05 36 $11.50 $10.50 $11.00 $10.00 47 0.05 46 53 0.5 0.15 0.05 63 70 78 $9.50 $8.50 $8.00 Normal Above Average Excellent i. Using the information above, calculate the fair premium (S/acre) for a soybean yield insurance policy that guarantees 5 Show your work. 5 bushels per acre, with insurance losses valued at $9.50 per bushel.Explanation / Answer
Probability
Weather
Soya yield per bushel
Soya price
$
Soya rev
$
YIELD INSURANCE
Value
$
REV INSURANCE
$
.5
NORMAL
63
$9.50
$660
55 x 9.50
= 522.50
660
.05
Excellent
78
$8.00
600
63 x 9.50= 600
600
.1
WET
IRRIGATION
53
$10.00
$605.00
605
605
THE PREMIUM SHOULD BE LESS WHEN THE FARMER TAKES PRECAUTIONS TO SEE THAT DURING DRY WEATHER HE STILL PROTECTS HIMSELF WITH PROVIDING WATER AND NOT NECESSARILY DEPEMDING ON INSURANCE.
Probability
Weather
Soya yield per bushel
Soya price
$
Soya rev
$
YIELD INSURANCE
Value
$
REV INSURANCE
$
.5
NORMAL
63
$9.50
$660
55 x 9.50
= 522.50
660
.05
Excellent
78
$8.00
600
63 x 9.50= 600
600
.1
WET
IRRIGATION
53
$10.00
$605.00
605
605
THE PREMIUM SHOULD BE LESS WHEN THE FARMER TAKES PRECAUTIONS TO SEE THAT DURING DRY WEATHER HE STILL PROTECTS HIMSELF WITH PROVIDING WATER AND NOT NECESSARILY DEPEMDING ON INSURANCE.
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