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A midsize corporation is considering

purchase of Cyber Liability Insurance Policy. The following table Enter question
provides the probability distribution of yearly cost coverage
associated with different level of Cyber
Security IT network
interruptions for this corporation.

Type of Risks Probability Cost Coverage

Continue to post
None 0.90 $0 11 questions remaining

Minor: A: (Loss or Damage to Electronic

Data) 0.050 $100,000

Moderate: A + B (Loss of Income and Extra

Expenses 0.030 $1,000,000
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phone to post a question
Major: A+B+ C (Cyber Extortion) 0.017 $2,500,000 We'll send you a one-time download
link
Catastrophic: A+B+C+D (loss of reputation & credit 0.003 $15,000,000
monitoring of all affected)
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a. What is the expected cost of this policy for the insurance

company? What is the By providing your phone number, you agree to receive a one-tim
automated text message with a link to get the app. Standard
Standard deviation of cost? Hint: Use
Excel. messaging rates may apply.

b. If the yearly cost of purchasing a network interruption

insurance is $100,000, calculate
the expected gain or loss for a
corporation that purchase this insurance. Would you
recommend
purchasing this insurance? Why?
My Textbook Solutions
c. Would you a buy this insurance policy at cost of $50,000?
Why?

Expert Answer
Essentials of Essential... Foundations
Biostatistics... of Economics
Anonymous answered this 3rd Edition 8th Edition 8th Edition
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a. Expected cost of Policy = $ 122,500

Expected cost of policy is calculate by multiplying individual

risk probability with its respective cost
coverage.

Standard Deviation of cost = $

26,743,653.79

Standard deviation is calculated by taking square root of sum

individual variances.

Individual variance = Pi*(E - Ci)^2

b. If cost of purchasing is $100,000, there would be a

gain of ($122,500-$100,000) = $22,500.

Hence, recommended.

c. If insurance policy is to be purchased for $50,000, I would

purchase the policy since there would be a
profit of
$72,500.

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