Question: An insurance policy pays a total medical benefit consisting of two parts for each claim. Let X represent the part of the benefit that is paid to the surgeon, and let Y represent the part that is paid to the hospital. The variance of X is 5000, the variance of Y is 10,000, and the variance of the total benefit, X + Y; is 17,000. Due to increasing medical costs, the company that issues the policy decides to increase X by a flat amount of 100 per claim and to increase Y by 10% per claim.
Calculate the variance of the total benefit after these revisions have been made.
Solution:
Calculate the variance of the total benefit after these revisions have been made.
Solution:
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