| December 10, 2015

Suppose an insurer estimates that an exposure has the following loss distribution?

$600,000 with probability 0.01

Loss= $100,000 with probability 0.02

$ 30,000 with probability 0.03

$ 0 with probability 0.94

Claim payment are not expected to be paid until one year after the premium is received. If the interest rate is 5 percentm what is the discounted expected claim cost?

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