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An auto insurance company classifies drivers as low risk if they are accident-free for one year. Historically...

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An auto insurance companyclassifies drivers as low risk if they are accident-free for oneyear. Historically 98% of the drivers in the low-risk category forone year will remain in that category for the next year, and 78% ofthe drivers who are not low-risk one year will be in the low-riskcategory for the next year. (SHOW ALL YOUR WORK TO RECEIVECREDIT)


A) Write a transitionmatrix with this information.


B) 90% of the drivers in acommunity are in the low-risk category this year. Write the initialprobability vector for this community. Then determine theprobability that a driver selected at random from the low-riskcategory will be in the low-risk category next year.


C) Determine thesteady-state vector for this Markov Chain and determine thepercentage of the drivers in the low risk category this year thatwill remain in the low risk category.

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