What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $500,000 deductible? Put this as a positive number since I am asking about "damage cost".

Question

What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $500,000 deductible?  Put this as a positive number since I am asking about "damage cost".

BlackTom AI · Accepted Answer

We begin by restating the prompt to ensure clarity: the question asks for the expected total property damage cost for a $500,000 deductible, including premiums, retained losses, and any additional financing or net-revenue losses, and to express this as a positive number.

Note about the provided data: there are no answer options given for this numerical question, only a proposed answer of 93,750. Without discrete answer choices, we cannot compare alternatives or rule in/out options through elimination.

General method to compute the expected total property damage cost:
- Step 1: Identify all components that contribute to the total cost under the deductible framework. Typically these include: premiums paid for coverage, retained losses (out-of-pocket losses up to the deductible that are borne by the policyholder), and any additional financing costs or net-revenue losses associated with the claim or coverage stabilization.
- Step 2: Determine the probability-weighted costs for each component. This usually requires the probability of different loss scenarios and the associated monetary impact under the deductible arrangement.
- Step 3: Sum the components to obtain the overall expected value: Expected Total Cost = Premiums + Expected Retained Losses + Expected Financing/Net-Revenue Losses.
- Step 4: Ensure the result is expressed as a positive value, as requested, and that it corresponds to the scenario described (i.e., costs incurred given the $500,000 deductible).

About the specific answer provided (93,750):
- The number 93,750 is a concrete figure, but without the breakdown of premiums, retained losses, and financing/net-revenue losses, or the underlying loss distribution and probabilities, it’s not possible to verify its correctness from the information given.
- If this value represents an expected cost expressed as a percentage of the deductible (for example, 93,750 is 18.75% of 500,000), one would need to know the rationale for that percentage (such as a specific probability of loss and expected loss severity, plus the other cost components). Without those inputs, the interpretation remains speculative.
- In practice, you would check whether Premiums + Expected Retained Losses + Financing/Net-Revenue Losses indeed sum to 93,750 under the stated deductible and policy terms. If any component is missing or if probabilities are misapplied, the result could differ.

If you can provide the breakdown or the underlying assumptions (premium amount, expected retained loss amount or probability distribution, financing costs, and any net-revenue impact), I can walk through a precise calculation step by step and confirm whether 93,750 is the correct expected total cost under those assumptions.

SP25 RMI 660 001 Homework 1: Decision Tree

What is the expected total property damage cost (including premiums, retained losses, and any additional financing/net-revenue losses) you calculate for the $500,000 deductible? Put this as a positive number since I am asking about "damage cost".

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