Golden Owl Brewery, a maker of fine beer,, has distribution centers all along th

Question

Golden Owl Brewery, a maker of fine beer,, has distribution centers all along the East coast. Golden Owl has a fleet of 460 trucks to delicious beverages to many locations. From past information, the Chief Risk Officer for Golden Owl has constructed the following probability distribution for the number of losses per truck per month – due to robbery.

From past information, Golden Owl has constructed the following distribution related to dollar amount of losses when robbery losses do occur.

a. Calculate expected value of frequency of losses per truck per month.

b. Calculate the expected severity of a robbery loss.

c. What is the expected loss per truck per month?

d. Calculate the expected loss for ALL trucks per month.

# of losses per truck per month Probability 1 .80 3 .10 5 .04 10 .03 20 .02 30 .01

Explanation / Answer

a)

Expected value of frequency of losses per truck per month = 2.3

b)

Expected severity of a robbery loss= 228

c)

228/2.3 = 99.13

d)

460*2.3= 1058 $

# of losses per truck per month Probability f*p 1 0.8 0.8 3 0.1 0.3 5 0.04 0.2 10 0.03 0.3 20 0.02 0.4 30 0.01 0.3 Mean 2.3

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