Question
In: Statistics and Probability
Jim has a 5-year-old car in reasonably good condition. He wantsto take out a $20,000...
Jim has a 5-year-old car in reasonably good condition. He wants to take out a $20,000 term (that is, accident benefit) car insurance policy until the car is 10 years old. Assume that the probability of a car having an accident in the year in which it isx years old is as follows:
| x = age | 5 | 6 | 7 | 8 | 9 |
| P(accident) | 0.01182 | 0.01282 | 0.01386 | 0.01602 | 0.01513 |
Jim is applying to a car insurance company for his term insurance policy. What would be the total expected loss to the insurance company over the years 5 through 9? Round your answer to the nearest dollar.
Solutions
Expert Solution
the expected loss in first year =20000*0.01182=236.4$
Second year =20000*0.01282=256.4$
Third year =20000*0.01386=277.2$
Fourth year=20000*0.01602=320.4$
Fifth year=20000*0.01513=302.6$
Total expected loss=236.4+256.4+277.2+320.4+302.6=1393$
orchestra answered 3 years agoRelated Solutions
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