Question

In: Statistics and Probability

Given the probability of an accident is 20% if you did not have an accident last...

  1. Given the probability of an accident is 20% if you did not have an accident last year, but the probability of an accident is 48% if you did have an accident, what is the expected value of insurance if each accident costs $10,000 and there are 100 policies at your company?

Solutions

Expert Solution

We are given following data :

  • Probability of accident is 20 % if there was no accident last year .

  • Probability of accident is 48 % if there was an accident last year .

  • There is a 50 % chance that a random person has done an accident last year .

By Law of Total Probability :

Expected Value of Insurance Per policy :

​​​​​​​ Expected Value of Insurance for 100 Policies :   

orchestra answered 2 years ago
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