If an insurance company has 10000 policies, and each has 0.1 probability of making a claim, what is the standard deviation of th
e fraction of policies which result in a claim?
2 answers:
Answer: S.D = +/- 0.003
The standard deviation of the fraction of policies which result in a claim is +/- 0.003
Step-by-step explanation:
Given;
Probability of making a claim p = 0.1
Number of company policies n = 10000
Standard deviation is the measure of how spread out numbers are.
S.D = √(p(1-p)/n)
Where,
p = 0.1
n = 10000
S.D = √(0.1(1-0.1)/10000)
S.D = √(0.1×0.9/10000)
S.D = √(0.000009)
S.D = +/- 0.003
Answer:
0.003
Step-by-step explanation:
Since each of the policy have the same chance of success, then it follows a binomial distribution (only two outcome; success or failure).
α = √(p(1-p)/n) = √ (0.1 ( 1-0.1)/ 10000) = √ 0.000009 = 0.003
where p = 0.1, α = standard deviation.
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