An insurance company is considering offering fire insurance to customers in a certain state.

An insurance company is considering offering fire insurance to customers in a certain state. After examining thousands of records of insurance claims in the area, they have come up with the following information:

Payout	Number of Claims
$58,971	22
28,117	602
0	2,972

First convert the table into a probability distribution by dividing each number in the "Claims" column by the total number of claims. Take probability calculations to 3 decimal places.

Now, let X be the expected payout. Find E(X), the expected value of X, to two decimal places.

Solutions

Expert Solution

Payout (X)	Number of claims	Probability distribution (p)
58971	22	22 / 3596 = 0.006
28117	602	602 /3596 = 0.167
0	2972	2972 / 3596 = 0.827

Total number of claims = 22 + 602 + 2972 = 3596

E(X) =

= 0.006 * 58971 + 0.167 * 28117 + 0.827 * 0

= 5049.37

orchestra answered 1 year ago

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