bHint: foxe-ax dx=T(b+1)ab+13. Total expenses for a portfolio of 5,000 independent insureds is assumed to follow a normaldistribution such that S ~ N(μ = 1,000,000, σ =o 50, 000). The insurer is considering im-plementing a new claim evaluation system that will add a fixed cost per insured of 1$, butshould greatly reduce variance. If the insurer's goal is to reduce its reserve set at a 95% le-vel, what percentage of reduction in variance is necessary for the system to be worthwhile ?Either code or use z=1.645.

To solve this problem, we need to calculate the reduction in variance that would justify the…

Answered: T(b+1) Hintxe-adx = ab+1 3. Total…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 8QTD

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