Expected value and standard deviation of ahmad losses

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Ahmad's Toy Store faces the follow probability distribution of fire losses in its store over the next year:

Probability 0.85 0.10 0.05

Loss RM0 RM20,000 RM40,000

a) Calculate the expected value and standard deviation of Ahmad's losses for the year.

b) Assume that Ahmad pools his losses with Bakar's store, which has an identical loss distribution. Bakar's losses are independent of Ahmad's. Ahmad and Bakar agree to split the total losses in the pool equally. Show the revised probability distribution for the mean loss from the pool.

c) Based on your answers in part (a) and (b) above, calculate the expected value and standard deviation of the pooled mean losses.

Reference no: EM132570616

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