70.2K

Verified Solution

Link Copied!

A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $64,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $64,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (a) If a financial firm sells these bonds for $64,000, the probability that the firm loses money if it only sells one of these is (Type an integer or a decimal.) A hurricane bond pays the holder a face amount, say $1 million, if a hurricane causes major damage in a certain country. Suppose that the chance for such a storm is 5% per year. (a) If a financial firm sells these bonds for $64,000 what is the chance that the firm loses money if it only sells one of these? (b) If the firm sells 1,000 of these policies, each for $64,000, what is the probability that it loses money? (c) How does the difference between parts a and b compare to the situation of a life insurance company that writes coverage to numerous patients that live or die independently of one another? (a) If a financial firm sells these bonds for $64,000, the probability that the firm loses money if it only sells one of these is (Type an integer or a decimal.)

Answer & Explanation Solved by verified expert

See Answer