Estimate cost of a contract that will pay in 1 years time

Assignment Help Financial Management

Reference no: EM131241264

An insurance company's losses of a particular type are to a reasonable approximation normally distributed with a mean of $150 million and a standard deviation of $50 million. (Assume no difference between losses in a risk-neutral world and losses in the real world.) The 1-year risk-free rate is 5%. Estimate the cost of the following:

(a) A contract that will pay in 1 year's time 60% of the insurance company's costs on a pro rata basis

(b) A contract that pays $100 million in 1 year's time if losses exceed $200 million.

Reference no: EM131241264

Questions Cloud

What is the acceleration of the car : A string with one 10-g washer on the end is attached to the rearview mirror of a car. When the car leaves an intersection, the string makes an angle of 5 with the vertical. What is the acceleration of the car?

Consider two bonds that have the same coupon : An analysis based on historical data shows that the expected losses on the two bonds in each year of their life is the same. Which bond would you advise a portfolio manager to buy and why?

Determine the magnitudes of t : The wagons are connected by a second horizontal rope that exerts a force of magnitude T2 on the second wagon. Determine the magnitudes of T1 and T2 if the acceleration of the wagon is 2.0 m/s².

Determine the overall manner in which variation has affected : Describe a work task, a hobby, or another activity that you regularly do, and sequentially list the various actions you take in order to complete this activity. Consider the complexity of your list and the amount of steps required to complete the ..

Estimate cost of a contract that will pay in 1 years time : Estimate the cost of a contract that will pay in 1 year's time 60% of the insurance company's costs on a pro rata basis. - A contract that pays $100 million in 1 year's time if losses exceed $200 million.

She recoil toward the spaceship : At what speed relative to the ship does she recoil toward the spaceship? Express your answer to two significant figures and include the appropriate units.I tried doing (3.0 kg * 15 m/s)/(57 kg) = v_f, but it's wrong.

Identify all system calls that have to be provided at api : Identify all system calls that have to be provided at the API of an eventtriggered operating system that supports preemptive C-tasks. What is the difference between interprocess communication based on state messages and interprocess communication ..

How many g''s is this acceleration : The Earth rotates on its axis once every 24 hours. Find the centripetal acceleration of an object on the Equator that rotates with the Earth's surface. How many g's is this acceleration? Explain why we are not aware of the Earth's rotation.

What special causes might be more important than the others : What might be the key processes for health-care organizations? What are the potential common causes of variation that would have an impact on the key processes of health-care organizations? What special causes might be more important tha..

User Account

All Pages