What is the fair premium for full coverage

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Reference no: EM132502671

Suppose that Skipper's insurer views him as having the following distribution for the present value of losses:

Loss = {

GH¢20000 w/p 0.02

GH¢5000 w/p 0.04

GH¢1000 w/p 0.10

GH¢0 w/p 0.84

(a) What is the fair premium for full coverage if the competitive loading (administrative costs and capital costs) equal 15 percent of claim costs?

(b) Suppose that Skipper believes his probability of losses is one-half of what the insurer believes. What is the loading from Skipper's perspective?

Reference no: EM132502671

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