Solution to asm course 4 Problem 67.12

[zivitzekis]

The last line of the solution is Pc= .7 +1/37(.2) Can someone explain where the .2 came from. u=.7 and z=1/37. Xbar must be .9 but I cannot understand how it was derived.

thanks
eric

[aces219]

I think the solution is wrong. X-bar should be 1 because one risk incurred one claim over one period. Maybe that is supposed to be 0.3 instead of 0.2? In addition, the calculation of E(u(theta)-squared|B) is wrong. In the 2nd term, that 2 should be a 4 because it is the 2nd moment so the 2 needs to be squared. This changes the whole calculation but you still end up with the same letter answer.