Homework Assignment 5

Homework Assignment 5

20 Points

Due on Monday, October 10, 2016 AT THE BEGINNING OF CLASS

Be careful to follow the Guidelines for Homework Document located in the Course

Documents Section of Blackboard. You will lose points for not following proper format.

This homework assignment has to be typed and submitted to Safe Assign.

1. Amazon.com, owns trucks used for cargo shipment. In the course of their

activities, Amazon sustains losses in the form of property damages to their

trucks. Assume that the Amazon owns a truck station located in Pennsylvania

(PA) and also another station in New Jersey (NJ).

The PA station has 250 trucks. The Amazon has the following data for the

number of accidents per truck in the PA station.

# of accidents per truck per year

# of trucks of having this # of accidents

0 136

1 63

2 51

a. What is the random variable illustrated here? [1 point]

b. Derive the probability distribution based on this data. Be careful to label

exactly what you are defining as the probability distribution. [2 points]

c. Calculate the expected value of frequency per truck. What are the units

of measurement? [2 points]

d. Amazon has calculated the variance for the PA station frequency

distribution to be equal to 0.6324. How much risk is present? What are the

units of measurement? [3 points]

P a g e 2 | 3

2. Amazon also has the following data for the number of accidents per truck in the

NJ station. The NJ station has 180 trucks. It is known that the variance of

frequency per truck in NJ is 0.57.

# of accidents per truck per year

# of trucks of having this # of accidents

0 62

1 75

2 43

Which truck station is riskier, PA station or NJ station? Show all calculations and

explain your numerical results. [4 points]

3. Assume initially that when accidents do occur, they are non-random and equal

to $2500.

a. Calculate the expected loss per truck for PA truck station. [2 points]

b. Calculate the expected loss for ALL trucks in PA truck station. [2 points]

4. Now based on the information in PA station, Amazon has constructed

information related to the dollar amount of losses for 25 reported accidents. This

information can be found on page 3.

a. Calculate the expected value of severity per truck. [2 points]

b. Calculated the expected loss per truck. [2 points]

P a g e 3 | 3

$ amount of losses

# of accidents of having this $ amount of losses

$300 2

$500 2

$900 1

$1,000 2

$1,500 1

$1,800 2

$2,000 1

$2,500 2

$2,800 1

$3,000 2

$3,500 2

$3,700 1

$4,000 1

$4,300 2

$4,500 1

$5,000 1

$5,500 1