Question

The Blue Sky Flight Insurance Company insures passengers against air disasters, charging a prospective passenger $20 for coverage on a single plane ride. In the event of a fatal air disaster, it pays out $400,000 to the named beneficiary. In the event of a nonfatal disaster, it pays out an average of $75,000 for hospital expenses. Given that the probability of a plane's crashing on a single trip† is 0.00000087, and assuming that a passenger involved in a plane crash has a 0.9 chance of being killed, determine the profit (or loss) per passenger that the insurance company expects to make on each trip. HINT [Use a tree to compute the probabilities of the various outcomes.]

Should the insurance company expect a profit or loss on each trip?
-profit
-loss

What is the value of the profit (or loss)? (Round your answer to the nearest cent.)

Answer 1