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crimeas [40]
3 years ago
12

Automobile policies are separated into two groups: low-risk and high-risk. Actuary Rahul examines low-risk policies, connuing un

l a policy with a claim is found and then stopping. Actuary Toby follows the same procedure with high-risk policies. Each low-risk policy has a 10% probability of having a claim. Each high-risk policy has a 20% probability of having a claim. The claim statuses of polices are mutually independent. Calculate the probability that Actuary Rahul examines fewer policies than Actuary Toby.
Mathematics
1 answer:
jonny [76]3 years ago
5 0

Answer:

The probability that Actuary Rahul examines fewer policies that Actuary Toby = 0.2857

Step-by-step explanation:

It is said that Actuary Rahul examines a low risk policy

Probability of a low risk policy having a claim = 10% = 0.1

Actuary Toby examines high risk policy

Probability of a high risk policy having a claim = 20% = 0.2

Let the number of policies examined by actuary Rahul before he finds a claim and stop be n

Probability that actuary Rahul examines exactly n policies =  0.9^{n-1} (0.1)

Probability that Toby examines more than n policies = 0.8^n

Since the claim statuses of policies are mutually independent, the probability that both events happen simultaneously = 0.9^{n-1} (0.1) (0.8)^n

probability that both events happen simultaneously = \frac{0.1}{0.9} (0.72^{n})

The probability that Actuary Rahul examines fewer policies that Actuary Toby = \sum\limits^ \infty_1 {\frac{0.1}{0.9} 0.72^{n} } = \frac{1}{9}\sum\limits^ \infty_1 { 0.72^{n} } = \frac{1}{9} (\frac{0.72}{1-0.72} ) = \frac{1}{9} (\frac{0.72}{0.28} )

The probability that Actuary Rahul examines fewer policies that Actuary Toby = 0.2857

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