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An insurance company sells a homeowner insurance policy that is $600 per year policy the insurance company predicts that the probability of having a home being damaged in the area. It sells this policy is about 1. over 1000 if the house is damaged the insurance company expects to pay $400,000 to the homeowners. If the company were to sell 250 policies how much money can it expect to gain or lose?

Answer :

Answer:

$50,000

Explanation:

Expected value = [tex]E_{1}[/tex] x [tex]P_{1}[/tex] + [tex]E_{2}[/tex] x [tex]P_{2}[/tex]

= $600 x [tex]\frac{900}{1,000}[/tex] + (-$399,400) x [tex]\frac{1}{1,000}[/tex]

= $599.40 - $399.40

= $200

$200 x 250 = $50,000

The insurance company can expect to make $50,000 from selling 250 policies.

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