Question

The annual premium for a ​$15 comma 000 insurance policy against the theft of a painting is ​$300. If the​ (empirical) probability that the painting will be stolen during the year is 0. 01​, what is your expected return from the insurance company if you take out this​ insurance?

Answer 1

-$150

Step-by-step explanation:

The computation of the expected return from the insurance company is shown below:

= Annual premium × probability of the stolen painting - 1 × theft of painting

= $15,000 × 0.01 - 1 × $300

= $150 - $300

= -$150

By multiplying annual premium with the probability of the stolen painting and then substracted theft of painting so that we can get to know the expected return and the same is to be considered