Problemsuppose an insurer estimates that an exposure has, Ask an Expert

Accounting

Problem:

Suppose an insurer estimates that an exposure has the following loss distribution?

$600,000 with probability 0.01
Loss= $100,000 with probability 0.02
$ 30,000 with probability 0.03
$ 0 with probability 0.94

Claim payment are not expected to be paid until one year after the premium is received.

Required:

Question: If the interest rate is 5 percent what is the discounted expected claim cost?

Note: Please explain comprehensively and give step by step solution.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170827

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