Question

In: Statistics and Probability

An automotive insurance company is reviewing a customer's application for a one-year policy. Based on the...

An automotive insurance company is reviewing a customer's application for a one-year policy. Based on the customer's driving history and the insurance company's past experience, the company assumes that the probability of each payout for one year is as shown in the table provided. What is the expected payout for the insurance company?

Payout Probability
$100,000 0.002
$50,000 0.005
$25,000 0.012
$10,000 0.026
$5,000 0.065
$0 0.89

Solutions

Expert Solution

ANSWER:

Expected payout =

= (100000*0.002)+ (50000*0.005)+(25000*.012)+ (10000*0.026)+(5000*.065)+(0*0.89)

= 200 + 250 + 300 + 260 + 325 + 0

= 1335

Hence the expected payout for the insurance company is $1335.

orchestra answered 2 years ago
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