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What is the expected amount Daniel-James will have to pay to Mobil in claims?

05 / 03 / 2018 Assignment

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Daniel-James
Insurance Company will insure an offshore Mobil Oil production platform
against weather losses for one year. The president of Daniel-James estimates
the following losses for that platform (in millions of dollars) with the
accompanying probabilities:

Amount
of Loss
($ millions)

Probability
of Loss

0

.98

40

.016

300

.004



What is the
expected amount Daniel-James will have to pay to Mobil in claims? (Enter your answer in millions to 2 decimal places. Omit
the “$” sign in your response.)

Expected amount

$ million

(b)

What is the
likelihood that Daniel-James will actually lose less than the expected
amount? (Round your answer to 2 decimal
places.)

Probability

(c)

Given that
Daniel-James suffers a loss, what is the likelihood that it is for $300
million? (Round your answer to 2 decimal
places.)

Probability

(d)

Daniel-James
has set the annual premium at $2.0 million. Does that seem like a fair
premium? Will it cover its risk?


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