Ask Question
11 January, 15:40

An insurance company charges $800 annually for car insurance. The policy specifies that the company will pay $1000 for a minor accident and $5000 for a major accident. If the probability of a motorist having a minor accident during the year is 0.2 and of having a major accident is 0.05 (and these events are mutually exclusive), what is the insurance company's expected profit on the policy

+2
Answers (1)
  1. 11 January, 15:55
    0
    Answer: the expected profit will be $755 annually.

    Explanation: Expected Profit (EP) = Charges (income for the insurance company) - probability of minor accidents X amount payable for a minor accident - probability of mayor accidents X amount payable for a major accident.

    800 - 1000 (0.2) - 5000 (0.05) = 800-20-25 = 755
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “An insurance company charges $800 annually for car insurance. The policy specifies that the company will pay $1000 for a minor accident and ...” in 📗 Mathematics if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers