snoopmt1

I'm new here, so perhaps this is beyond the intended purpose of the board. But, that doesn't mean it's beyond its members. Here is the question:

An insurance company sells a one-year automobile policy with a deductible of 2.
The probability that the insured will incur a loss is 0.05.
If there is a loss, the probability of a loss of amount N is K/N for N = 1; ... ; 5 and K a constant.
These are the only possible loss amounts and no more than one loss can occur.

Determine the net premium for this policy.

I have determined that K=60/137

Here is a chart of the probability distribution that I found:

Pr(N=1)= p(1) = 60/137
Pr(N=2) = 30/137
Pr(N=3) = 20/137
Pr(N=4) = 15/137
Pr(N=5) = 12/137

Here's where I start to get unsure, but think it's still on the right track:

E(K/N) = .05K*E(1/N) = K*(1(p(1)) + 1/2(p(2)) + 1/3(p(3)) + ... 1/5(p(5))

I'm not sure what to do with the deductible of 2. The answer is .0314 but I haven't found a way to get to it. Any help?

skipjack