Question

You are appointed as Risk Manager of a local company. The board of directors instructs you to establish a fund with which to finance losses to the company's motor vehicle fleet. Using tools that you learned in FIN 341 you analyze past loss data and find mean (average) losses equal to $2 million per year with a standard deviation of $200,000 and a mode of $400,000. Assuming that the losses follow a normal distribution, you can tell the board that 99% of the time losses will be between ________ and ________.

a) $1.6 million; $2.4 million
b) $1.8 million; $2.2 million
c) $1.6 million; $2.2 million
d) $1.8 million; $2.4 million

Answer 1

The losses will be between $1.6 million and $2.4 million 99% of the time.

Step-by-step explanation:

The board of directors has instructed you as Risk Manager to establish a fund to finance losses to the company's motor vehicle fleet. By analyzing past loss data, you determine that the mean (average) losses are $2 million per year with a standard deviation of $200,000 and a mode of $400,000. Assuming that the losses follow a normal distribution, you can inform the board that 99% of the time, losses will be between $1.6 million and $2.4 million.