Question

An insurance policy sels for $600 Based on past data an average of 1 in 100 policyholders will file a $20,000 claim, an average of 1 in 200 po cyholders w ea $30 000 cm and an average of 1 in 500 policyholders will he an 550 000 claim Find the expected value to the company, per policy sold if the company sels 20 000 policies what is the expected profit or loss? The expected values Soy your answer

Answer 1

the expected value= $90

Explanation:

when sell is $600 an average of 1 in 100 will claim $20,000

and an average 1 in 200 will claim $30,000

and an average of 1 in 500 will claim $550,000.

company sells 20,000 policies

The expected profit loss can be written as

= 600 - (1/100 * 20000) - (1/200 * 30000) - (1/500 * 80000)

= 600 - 200 - 150 - 160

= 90

Therefore, the expected value= $90