Do The Math Q18

Do The Math Q18

An insurance policy pays for a random loss X subject to a deductible of C, where 0 < C < 1. The loss amount is modeled as a continuous random variable with density function

Given a random loss X, the probability that the insurance payment is less than 0.5 is equal to 0.64 .

Calculate C.

  1. 0.1
  2. 0.3 Correct Answer
  3. 0.4
  4. 0.6
  5. 0.8

SOLUTION: B

Denote the insurance payment by the random variable Y. Then

and

It follows that the expected claim payment is 328.