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Calculate your expected expenses that you paid

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Question - The deductible on your home insurance policy is $ 10,000, which means that you will pay the first $ 10,000 of any damages and then the insurance company will cover the rest. If the house damages are less than $10,000, you need not file a claim with the insurance company and you will pay on your own.

The damage amounts to the home is going to be normally distributed with a mean of $12,000 and a standard deviation of $ 3,000. The value of the house is insured for only 50,000, which is the upper bound on the damage amount. Any accident resulting in damages above 50,000 requires a new home.

The lower bound on damages is $0. The probability of a home accident occurring this year is 5.5%.

Build a Monte Carlo simulation model to show your expenses in this situation. If there is no home damage then there are no expenses that you have to pay.

Analyze the results of the 1000 iterations to find the following as a percentage of the 1000 iterations. Answer the following in Excel:

How often a claim was filed (damage met deductible)?

How often you ended up buying a new house?

Calculate your expected expenses that you paid?

Reference no: EM133008134

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