An insurance policy sells for $1,000. Based on your past data, an aver

mronjo7n

mronjo7n

Answered question

2021-12-01

An insurance policy sells for $1,000. Based on your past data, an average of 1 in 50 policyholders will file a $9,000 claim, an average of 1 in 100 policyholders will file a $24,000 claim, and an average of 1 in 250 policyholders will file a $55,000 claim. Find the expected value for the company per policy sold.

Answer & Explanation

Kevin Hunt

Kevin Hunt

Beginner2021-12-02Added 20 answers

Step 1
The expected value for the company per policy sold can be calculated using the following formula:
E(X)=xP(x)
Step 2
The probability distribution for the provided can be written as:
xp(x)80000.02230000.01540000.00410000.966
Step 3
The expected value for the company per policy sold is:
E(X)=[(8000)(0.02)+(23000)(0.01)+(54000)(0.004)+(1000)(0.966)]
E(X)=360

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