Let X be the damage incurred (in $) in a certain type of accident during a given year. Possible X values are 0, 1,000, 5,000, and 10,000, with probabilities 0.84, 0.08, 0.06, and 0.02, respectively. A particular company offers a $500 deductible policy. If the company wishes its expected profit to be $100, what premium amount should it charge (in dollars)?

College Algebra
7th Edition
ISBN:9781305115545
Author:James Stewart, Lothar Redlin, Saleem Watson
Publisher:James Stewart, Lothar Redlin, Saleem Watson
Chapter9: Counting And Probability
Section9.4: Expected Value
Problem 1E: If a game gives payoffs of $10 and $100 with probabilities 0.9 and 0.1, respectively, then the...
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Let X be the damage incurred (in $) in a certain type of accident during a given year. Possible X values are 0, 1,000, 5,000, and 10,000, with probabilities 0.84, 0.08, 0.06, and 0.02, respectively. A particular company offers a $500 deductible policy. If the company wishes its expected profit to be $100, what premium amount should it charge (in dollars)?

 

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