An insurance policy sells for $1000 based on

Answered question

2022-01-14

An insurance policy sells for $1000 based on past data, an average of 1 in 50 policyholders will file a $10,000 claim, an average of 1 in 100 policyholders will file a $40,000 claim, an average of 1 in 250 policyholders will file an $80,000 claim. Find the expected value (to the company) per policy sold. If the company sells 20,000 policies, what is expected profit or loss?

Answer & Explanation

Vasquez

Vasquez

Expert2022-02-06Added 669 answers

Expected value = selling price for the policy - expected - claim amount on the policy

=100010000(1/50)40000(1/100)80000(1/250)

=1000200400320

=1000920

=80

Hence, expected profit per policy for the company is =$80

expected profit for 20000 policies are

=8020000

=1600000

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