Question
In: Statistics and Probability
An automobile insurance company estimates the following loss probabilities for the next year on a $20,000...
An automobile insurance company estimates the following loss probabilities for the next year on a $20,000 sports car:
Total Loss: .001
50% Loss: .01
20% Loss: .05
If the company charges $850 annual premium for this car, how much is the company's expected gain per policy?
| X | P(X) | x. P(x) |
| D | ||
| D- | ||
| Sum |
My professor wants the answer in the table above (if possible). I am unsure on how to answer this.
Solutions
Expert Solution
suppose X is loss without considering premium
| X | P(X) | xP(X) |
| 20000 | 0.001 | 20 |
| 10000 | 0.01 | 100 |
| 4000 | 0.05 | 200 |
| 0 | 0.939 | 0 |
| 1 | 320 |
Expected value of X = 
= 320
hence
Expected gain if premium = 850 is 850 - 320 = 530
orchestra answered 2 years agoRelated Solutions
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