The probability of a fire in a certain structure during a given period is 0.03.

Question

The probability of a fire in a certain structure during a given period is 0.03. If a fire occurs, the damage is uniformly distributed on the interval [0,100] (say, the unit of money is $10,000).
(a) Assume that the insurance company covers the total damage and denote by Y the (random) amount the company will pay. Write E{Y} and Var{Y}. Graph the distribution
function of Y.
(b) Do the same for the case when the insurance contract provides coverage above a deductible of 5.
(c) Do the same for the case when the insurance contract provides coverage above a deductible of 5, and the maximum (limit) payment is 90 units.

Explanation / Answer

We have given distribtuion uniform as [0,100]

Mean for uniform distribution is (a+b)/2 = (0+100)/2 = 50

varaince is (b - a)^2/12 = (100^2/12 = 10000/12 = 833.333

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.