Calculate the expected number of losses per year

Reference no: EM133200745 , Length: Word count: 2 Pages

Question 1: Use this Probability Distribution (PD) to answer the three questions below: Margie's Coffee House & Bakery would like to estimate the number of worker's compensation claims for the upcoming year using accumulated data from the past 10 years. Upon review of this data it has been determined that Margie's has had between 0 and 2 claims annually. The loss distribution for Margie's Coffee House& Bakery is as follows:

# of Worker’s Compensation Losses per Year	Probability of having this # of losses
0	0.1
1	0.7
2	0.2

a. Calculate the expected number of losses per year (mean).

b. Calculate the variance for the Margie's Coffee House & Bakery frequency distribution. Hint - first, construct a Probability Distribution Table now that the mean has been determined.

c. Margie's Coffee House & Bakery wants to know how their risk compares to that of their competitor, Jimmy's Café. Jimmy's Café expects on average 1 accident per year with a variance of .60. Who faces more risk, Margie's or Jimmy's? Hint: Margie's and Jimmy's have different means. Show your work

Question 2: Pinnacle Transportation Corp (PTC) is a limousine service and uses a fleet of 1,000 vehicles to provide limousine and party bus services. From past information, the Chief Risk Officer for PTC has constructed the following loss distribution for the number of accidents per vehicle per year. Hint: frequency.

# of accidents per vehicle per year	# of vehicles having these losses
0	300
1	500
2	200

Find the expected number of accidents per vehicle per year, i.e. calculate the E(F).

Question 3: Now assume from past information, PTC has constructed the following probability distribution (PD) for the dollar amount of loss when accidents do occur. Hint: severity.

$ amount of losses	Probability of dollar losses
2,000	0.4
8,000	0.35
15,000	0.25

a. Find the expected cost per accident, i.e., calculate the E(S).

b. Calculate the expected loss per vehicle per year.

c. Calculate the expected loss for all vehicles per year.

Reference no: EM133200745

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