Question
In: Statistics and Probability
Accidents records by an auto insurance company suggest that theprobability that an insured driver has...
Accidents records by an auto insurance company suggest that the probability that an insured driver has an accident is 0.15.If an accident occurs, the damage to the vehicle amounts to an average of 5380.What premium should the insurance company charge, in order to have an expected profit of 2500?
a)On average the insurer should charge _? (round to 2 decimal points.?
Solutions
Expert Solution
premium = probability(accident) * payment(accident) + expected profit
given,
P(accident) = 0.15
payment (accident) = $5380
expected profit = $2500
a.
premium that company should charge :
premium = probability(accident) * payment(accident) + expected profit
= 0.15 * $5380 + $2500
= $ 3307
premium = $ 3307
orchestra answered 2 years agoRelated Solutions
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