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# Boat Insurance Maritime Insurance Company offers insurance policies for recreational boats. A typical policy will pay the replacement cost of \$25,000...

Boat Insurance Maritime Insurance Company offers insurance policies for recreational boats. A typical policy will pay the replacement cost of \$25,000 if the boat is a total loss. If the boat is not a total loss but the damage is more than \$10,000, the policy pays \$5,000. For damage under \$10,000, no coverage is offered. The company estimates the probability of no damage to be 0.60, the probability of damage between \$0 and \$10,000 to be 0.25, and the probability of damage between\$10,000 and \$25,000 to be 0.12. If the company wants to make a proﬁt of \$200 above the expected cost, what should be the price of the policy?

prob
no damage
damage &lt;10000
damage&lt; 25000
damage &gt;25000 payoff
0.6
0.25
0.12
0.03 0
0
10000
25000 0
0
1200
750
1950
expected money paid by the company = 1950=expectedcost ofa insurance...

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