View the step-by-step solution to:

Problem #1 (Expected Value. No need for Megastat on this one) The probability distribution for damage claims paid by the Newton Automobile Insurance...

Problem #1 (Expected Value. No need for Megastat on this one)
The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance follows.

Payment ($) Probability
0 .85
500 .04
1000 .04
3000 .03
5000 .02
8000 .01
10000 .01

(a) Use the expected collision payment to determine the collision insurance premium that would enable the company to break even on the policy.
(b) The insurance company charges an annual rate of $520 for the collision insurance. What is the expected value of the collision policy for a policyholder? (Hint: It is the expected payments from the company minus the cost of the coverage). Why does a policyholder purchase a collision policy with this expected value?

i have no idea how to approach this!

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question