Chapter 9.1, Problem 31E

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10th Edition

Ron Larson

ISBN: 9781305860919

Textbook Problem

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**Insurance** An insurance company needs to determine the annual premium required to break even on fire protection policies with a face value of $90,000. The random variable *x* is the claim size on these policies, and the analysis is restricted to the losses $30,000, $60,000, and $90,000. The probability distribution of *x* is as shown in the table. What premium should customers be charged for the company to break even?

x |
0 |
30,000 | 60,000 | 90,000 |

P(X) |
0.995 | 0.0036 | 0.0011 | 0.0003 |

To determine

**To calculate:** The annual premium which should be charged from customers by the insurance company in order to break even on fire protection policies with a face value of $90,000

Explanation

**Given Information:**

The probability distribution of claim size of these policies:

Claim size (x)in $ |
0 | 30,000 | 60,000 | 90,000 |

Probability | 0.995 | 0.0036 | 0.0011 | 0.0003 |

**Formula used:**

If *x* is a discrete random variable which assumes values

**Calculation:**

Consider the given probability distribution table can be represented as

X |
0 | 30,000 | 60,000 | 90,000 |

P(X) |
0.995 | 0.0036 | 0.0011 | 0.0003 |

Where, *X, P(X)* represents claim and their respective probability, where for

And

Consider the formula for expected value

Sect-9.1 P-1CPSect-9.1 P-2CPSect-9.1 P-3CPSect-9.1 P-4CPSect-9.1 P-5CPSect-9.1 P-6CPSect-9.1 P-1SWUSect-9.1 P-2SWUSect-9.1 P-3SWUSect-9.1 P-4SWU

Sect-9.1 P-5SWUSect-9.1 P-6SWUSect-9.1 P-7SWUSect-9.1 P-8SWUSect-9.1 P-9SWUSect-9.1 P-10SWUSect-9.1 P-1ESect-9.1 P-2ESect-9.1 P-3ESect-9.1 P-4ESect-9.1 P-5ESect-9.1 P-6ESect-9.1 P-7ESect-9.1 P-8ESect-9.1 P-9ESect-9.1 P-10ESect-9.1 P-11ESect-9.1 P-12ESect-9.1 P-13ESect-9.1 P-14ESect-9.1 P-15ESect-9.1 P-16ESect-9.1 P-17ESect-9.1 P-18ESect-9.1 P-19ESect-9.1 P-20ESect-9.1 P-21ESect-9.1 P-22ESect-9.1 P-23ESect-9.1 P-24ESect-9.1 P-25ESect-9.1 P-26ESect-9.1 P-27ESect-9.1 P-28ESect-9.1 P-29ESect-9.1 P-30ESect-9.1 P-31ESect-9.1 P-32ESect-9.1 P-33ESect-9.1 P-35ESect-9.1 P-36ESect-9.1 P-37ESect-9.1 P-38ESect-9.2 P-1CPSect-9.2 P-2CPSect-9.2 P-3CPSect-9.2 P-4CPSect-9.2 P-5CPSect-9.2 P-1SWUSect-9.2 P-2SWUSect-9.2 P-3SWUSect-9.2 P-4SWUSect-9.2 P-5SWUSect-9.2 P-6SWUSect-9.2 P-7SWUSect-9.2 P-1ESect-9.2 P-2ESect-9.2 P-3ESect-9.2 P-4ESect-9.2 P-5ESect-9.2 P-6ESect-9.2 P-7ESect-9.2 P-8ESect-9.2 P-9ESect-9.2 P-10ESect-9.2 P-11ESect-9.2 P-12ESect-9.2 P-13ESect-9.2 P-14ESect-9.2 P-15ESect-9.2 P-16ESect-9.2 P-17ESect-9.2 P-18ESect-9.2 P-19ESect-9.2 P-20ESect-9.2 P-21ESect-9.2 P-22ESect-9.2 P-23ESect-9.2 P-24ESect-9.2 P-25ESect-9.2 P-26ESect-9.2 P-27ESect-9.2 P-28ESect-9.2 P-29ESect-9.2 P-30ESect-9.2 P-31ESect-9.2 P-32ESect-9.2 P-33ESect-9.2 P-34ESect-9.2 P-35ESect-9.2 P-36ESect-9.2 P-37ESect-9.2 P-38ESect-9.2 P-39ESect-9.3 P-1CPSect-9.3 P-2CPSect-9.3 P-3CPSect-9.3 P-4CPSect-9.3 P-5CPSect-9.3 P-6CPSect-9.3 P-7CPSect-9.3 P-1SWUSect-9.3 P-2SWUSect-9.3 P-3SWUSect-9.3 P-4SWUSect-9.3 P-5SWUSect-9.3 P-6SWUSect-9.3 P-1ESect-9.3 P-2ESect-9.3 P-3ESect-9.3 P-4ESect-9.3 P-5ESect-9.3 P-6ESect-9.3 P-7ESect-9.3 P-8ESect-9.3 P-9ESect-9.3 P-10ESect-9.3 P-11ESect-9.3 P-12ESect-9.3 P-13ESect-9.3 P-14ESect-9.3 P-15ESect-9.3 P-16ESect-9.3 P-17ESect-9.3 P-18ESect-9.3 P-19ESect-9.3 P-20ESect-9.3 P-21ESect-9.3 P-22ESect-9.3 P-23ESect-9.3 P-24ESect-9.3 P-25ESect-9.3 P-26ESect-9.3 P-27ESect-9.3 P-28ESect-9.3 P-29ESect-9.3 P-30ESect-9.3 P-31ESect-9.3 P-32ESect-9.3 P-33ESect-9.3 P-34ESect-9.3 P-35ESect-9.3 P-36ESect-9.3 P-37ESect-9.3 P-38ESect-9.3 P-39ESect-9.3 P-40ESect-9.3 P-41ESect-9.3 P-42ESect-9.3 P-43ESect-9.3 P-44ESect-9.3 P-45ESect-9.3 P-46ESect-9.3 P-47ESect-9.3 P-48ESect-9.3 P-49ESect-9.3 P-50ESect-9.3 P-54ESect-9.3 P-55ESect-9.3 P-56ESect-9.3 P-57ECh-9 P-1RECh-9 P-2RECh-9 P-3RECh-9 P-4RECh-9 P-5RECh-9 P-6RECh-9 P-7RECh-9 P-8RECh-9 P-9RECh-9 P-10RECh-9 P-11RECh-9 P-12RECh-9 P-13RECh-9 P-14RECh-9 P-15RECh-9 P-16RECh-9 P-17RECh-9 P-18RECh-9 P-19RECh-9 P-20RECh-9 P-21RECh-9 P-22RECh-9 P-23RECh-9 P-24RECh-9 P-25RECh-9 P-26RECh-9 P-27RECh-9 P-28RECh-9 P-29RECh-9 P-30RECh-9 P-31RECh-9 P-32RECh-9 P-33RECh-9 P-34RECh-9 P-35RECh-9 P-36RECh-9 P-37RECh-9 P-38RECh-9 P-39RECh-9 P-40RECh-9 P-41RECh-9 P-42RECh-9 P-43RECh-9 P-44RECh-9 P-45RECh-9 P-46RECh-9 P-47RECh-9 P-48RECh-9 P-49RECh-9 P-50RECh-9 P-51RECh-9 P-52RECh-9 P-53RECh-9 P-54RECh-9 P-55RECh-9 P-56RECh-9 P-57RECh-9 P-58RECh-9 P-59RECh-9 P-60RECh-9 P-61RECh-9 P-62RECh-9 P-1TYSCh-9 P-2TYSCh-9 P-3TYSCh-9 P-4TYSCh-9 P-5TYSCh-9 P-6TYSCh-9 P-7TYSCh-9 P-8TYSCh-9 P-9TYSCh-9 P-10TYSCh-9 P-11TYSCh-9 P-12TYSCh-9 P-13TYSCh-9 P-14TYSCh-9 P-15TYSCh-9 P-16TYS

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