TOLANI INSTITUTE OF MANAGEMENT STUDIES RMI Quiz 1 (40 minutes) Q1.

What major methods are used to finance losses? How does Loss Financing differ from Internal Risk Reduction? Q2.Some people argue that any risk of injury from toxic chemicals and environmental pollutants is too high. Explain why this zero risk goal would not lead to an efficient level of risk in society. Q3.Ignoring incentives from the legal system what incentives do businesses have to (a) make safe products (b) reduce worker injury risk and (c) avoid polluting the environment ? Q4. Suppose that Kate and Anne enter into a pooling arrangement .Assume that both women have the following loss distributions and that losses are independent. Rs.50000 with probability 0.005 Rs.20000 with probability 0.010 Rs.10000 with probability 0.020 Rs.0 with probability 0.965 a. Write out the possible outcomes and the probability of each outcome for Kate and Anne after they enter into a pooling arrangement .That is , write out the probability distribution for loss of the women after they enter into a pooling arrangement. b. Calculate the expected loss to each person prior to and subsequent to entering into a pooling arrangement.

TOLANI INSTITUTE OF MANAGEMENT STUDIES RMI Quiz 1

(40 minutes)

Q1. What major methods are used to finance losses? How does Loss Financing differ from Internal Risk Reduction? Q2.Some people argue that any risk of injury from toxic chemicals and environmental pollutants is too high. Explain why this zero risk goal would not lead to an efficient level of risk in society. Q3.Ignoring incentives from the legal system what incentives do businesses have to (a) make safe products (b) reduce worker injury risk and (c) avoid polluting the environment ? Q4. Suppose that Kate and Anne enter into a pooling arrangement .Assume that both women have the following loss distributions and that losses are independent. Rs.50000 with probability 0.005 Rs.20000 with probability 0.010 Rs.10000 with probability 0.020 Rs.0 with probability 0.965 a. Write out the possible outcomes and the probability of each outcome for Kate and Anne after they enter into a pooling arrangement .That is , write out the probability distribution for loss of the women after they enter into a pooling arrangement. b. Calculate the expected loss to each person prior to and subsequent to entering into a pooling arrangement.