State Farm is selling an insurance policy. They determine that the probability of a person getting in a crash in the next year is 12%. On average, a crash costs the insurance company $1,555. Assume that they sell this policy for $170. a) Assuming that there is nothing else that can cost the insurance company money, what is the expected value of this policy to the insurance company? Identify the random variable and show the steps of the calculation. b) Should State Farm sell this policy? Why or why not?
State Farm is selling an insurance policy. They determine that the probability of a person getting in a crash in the next year is 12%. On average, a crash costs the insurance company $1,555. Assume that they sell this policy for $170. a) Assuming that there is nothing else that can cost the insurance company money, what is the expected value of this policy to the insurance company? Identify the random variable and show the steps of the calculation. b) Should State Farm sell this policy? Why or why not?
Chapter8: Sequences, Series,and Probability
Section8.7: Probability
Problem 11ECP: A manufacturer has determined that a machine averages one faulty unit for every 500 it produces....
Related questions
Question
State Farm is selling an insurance policy. They determine that the probability of a person getting in a crash in the next year is 12%. On average, a crash costs the insurance company $1,555. Assume that they sell this policy for $170. a) Assuming that there is nothing else that can cost the insurance company money, what is the expected value of this policy to the insurance company? Identify the random variable and show the steps of the calculation. b) Should State Farm sell this policy? Why or why not?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you