How much should the company charge for the policy if it requires that the expected profit per policy be $80?
An insurance company issues a one-year $1,000 policy insuring against an occurrence A that historically happens to 7 out of every 100 owners of the policy. Administrative fees are $25 per policy and are not part of the company's "profit." How much should the company charge for the policy if it requires that the expected profit per policy be $80? [HINT: If C is the premium for the policy, the company's "profit" is C − 25 if A does not occur, and C − 25 − 1,000 if A does occur.]
here given,
An insurance company issues a one-year $1,000 policy insuring against an occurrence A that historically happens to 7 out of every 100 owners of the policy
probability of A = p(A) = 7/100 = 0.07
probability of A' = 1-p(A) = 0.93
here x= profit for company
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
