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20 December, 20:35

Two insurance policies, G and H, can each only submit one claim in a given month. For insurance policy G, there is a 45% chance that no claims are made in the coming month. Otherwise, the loss amount follows an exponential distribution with a mean of 5. For insurance policy H, there is a 35% chance that no claims are made in the coming month. Otherwise, the loss amount follows an exponential distribution with a mean of 9. For both policies, there is a deductible of 2 and they only reimburse 80% of the amount that exceeds the deductible. Calculate the difference between the expected reimbursements of the two policies for a given month.

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  1. 21 December, 00:29
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    the difference between the expected reimbursements of the two policies for a given month is 2.32

    Step-by-step explanation:

    Given That,

    P (no claim in G) = 0.45

    P (claim in G) = 1-0.45 = 0.55

    P (no claim in H) = 0.35

    P (claim in H) = 1-0.35 = 0.65

    mean reimbursement = (mean claim - 2) * 0.80

    mean reimbursement (G) = (5 - 2) * 0.80 = 2 ... 4

    mean reimbursement (H) = (9 - 2) * 0.80 = 5.6

    E (reimbursements) = P (claim) * (mean reimbursement)

    E (reimbursements (G)) = P (claim in G) * (mean reimbursement (G))

    = 0.55*2.4 = 1.32

    E (reimbursements (H)) = P (claim in H) * (mean reimbursement (H))

    = 0.65*5.6 = 3.64

    difference in expected reimbursements = 3.64 - 1.32

    difference in expected reimbursements = 2.32

    Therefore, the difference between the expected reimbursements of the two policies for a given month is 2.32
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