Consider an insurance company that sells car insurance to several thousand households in south Florida. Each policy has a return of 1% and a standard deviation of 5%. Policyholders only submit claims when they get into car accidents. Assume that car accidents are uncorrelated across policyholders. What is the standard deviation of the insurance company's returns?

Consider an insurance company that sells car insurance to several thousand households in south Florida. Each policy has a return of 1% and a standard deviation of 5%. Policyholders only submit claims when they get into car accidents. Assume that car accidents are uncorrelated across policyholders. What is the standard deviation of the insurance company's returns?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 7MC

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