You are given the following:

• Year 1 loss has an exponential distribution with mean $1,250.
• Claim costs rise 5% from year 1 to year 2
• The policy has a deductible of $400 in effect during years 1 and 2.
• x₁ denotes the probability that payment exceeds $500 in year 1, given that payment is positive.
• x₂ denotes the probability that payment exceeds $500 in year 2, given that payment is positive.

Which interval contains the ratio x₂/x₁?

• [0.5, 0.7]
• [0.98, 1.03]
• [1.1, 1.2]
• [1.3, 1.4]
• 1.5+