Simulation

Class-Work Sheet

Chapter 16 : Simulation

The Statewide Auto Insurance Company developed the following probability distribution for automobile collision claims paid during the past year:

Payment ($) Probability

0 0.83

500 0.06

1,000 0.05

2,000 0.02

5,000 0.02

8,000 0.01

10,000 0.01

a. Set up intervals of random numbers that can be used to generate automobile collision claim payments.

0.00 0.83 sub-interval 1 (claims amount 0),

0.83 0.89 sub-interval 2 (claims amount 500),

0.89 0.94 sub-interval 3 (claims amount 1000),

0.94 0.96 sub-interval 4 (claims amount 2000),

0.96 0.98 sub-interval 5 (claims amount 5000),

0.98 0.99 sub-interval 6 (claims amount 8000),

0.99 1.00 sub-interval 7 (claims amount 10000).

b. Using the first 20 random numbers in column 4 of Table 16.2, simulate the payments for 20 policyholders.

c. How many claims are paid and what is the total amount paid to the policyholders?

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