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Question

Jake faces a 60% chance of having a loss of $0 and a 40% chance of having a loss of $15. Mark also faces a 20%

chance of having a loss of $0 and an 80% chance of having a loss of $7.50.  Shannon faces a 75% chance of having a loss of $0 and a 25% chance of having a loss of $30.


a. What is the actuarially fair premium (AFP) for Jake and Mark each individually? (1 point)


b. What is the actuarially fair premium (AFP) for Shannon? (1 point)


c. If Shannon is added to the risk pool for insurance with Jake and Mark, what would the expected loss (P*) be? (1 point)


d. If the insurer charges all of them a price of $7, is that price a good deal for each of them? Why or why not? (hint - think about the AFP for each) (2 points)

Top Answer

a. 6 is the AFP for each of them b.... View the full answer

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