E370

Week 05
Part 2:
Practice Expected
Values of Discrete
Random Variables
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X)
V(X) =
= 681275
681275 $825.40
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X)
V(X) =
= 681275
681275 $825.40
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X)
V(X) =
= 681275
681275 $825.40
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X)
V(X) =
= 681275
681275 $825.40
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X)
V(X) =
= 681275
681275 $825.40
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X) = $825.40
V(X) = 681275
 An automobile insurance company estimates
the following loss probabilities for the next
year on a $10,000 motorcycle. What is the
expected loss, the expected standard
deviation of loss, and the value of the
Loss loss? (X )*P( (X E(X))22
median
% P(Los i ii
Valu
Loss s) Xi) *P(Xii)
e
(10000-
(10000-
Total 285)
285)22*0.001
*0.001
loss 10000 0.001 10 =94381.23
=94381.23
50%
loss 5000 0.010 50 222312.3
222312.3
25%
Practice
loss 2500 0.050 expected
125 245311.3
245311.3

values
10%
loss 1000 0.100 100 51122.5
51122.5
0% loss0 0.839 0 68147.78
68147.78 SQRT
E(X) $285 V(X) = $825.40
V(X) = 681275
What does the loss function look
like?

Continuing the problem

1. Recognize a valid probability (frequency)
distribution.
2. Recognize that the answer is a dollar value,
and translate % loss to dollars.
3. Sketch a frequency polygon (or histogram)
correctly.
4. Calculate expected value.
5. Calculate expected standard deviation.
6. Definition of a median.
7. Correctly interpret graph.
8. Correctly interpret statistics.

What concepts were

necessary for this problem?