Spring 2011 RMI2101 HW#3 Solutions(1)

Spring 2011 RMI2101 HW#3 Solutions(1) - RMI 001...

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RMI 001 I NTRODUCTION TO R ISK M ANAGEMENT H OMEWORK A SSIGNMENT 3 S OLUTIONS (30 P OINTS ) S PRING 2011 1. Assume that United Delivery Service (UDP), a mail service company, has distribution centers all along the East coast. UDP uses a fleet of 2,000 delivery trucks in its operations dispersed among the various distribution centers. From past information, the Chief Risk Officer for UDP has constructed the following probability distribution for the number of losses per truck per month. # of losses per truck per month Probability 0 0.65 1 0.13 2 0.09 3 0.07 4 0.06 a. Calculate expected value of frequency per truck per month . (3 points) Mean/frequency: 0(.65) + 1(.13) + 2(.09) + 3(.07) + 4(.06) = .76 b. Calculated the variance . (3 points) Number of  Losses Probabilit y (Losses*Prob) Mean Diff from  mean Diff  Squared Diff squared  * Prob 0 0.65 0 0.76 -0.76 0.5776 0.37544 1 0.13 0.13 0.76 0.24 0.0576 0.007488 2 0.09 0.18 0.76 1.24 1.5376 0.138384 3 0.07 0.21 0.76 2.24 5.0176 0.351232 4 0.06 0.24 0.76 3.24 10.4976 0.629856
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Spring 2011 RMI2101 HW#3 Solutions(1) - RMI 001...

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