An insurance policy pays for a random loss X subject to a deductible of C, where 0 < C < 1. The loss amount is modeled as a continuous random variable with density function
Given a random loss X, the probability that the insurance payment is less than 0.5 is equal to 0.64 .
Calculate C.
- 0.1
- 0.3 Correct Answer
- 0.4
- 0.6
- 0.8
SOLUTION: B
Denote the insurance payment by the random variable Y. Then
and
It follows that the expected claim payment is 328.