SOLUTION: A car insurance plan pays $15,000 for a stolen car, $8,000 for a broken car, and $5,000 for a damaged car. In the NY State every year, 2% of cars are stolen, 5% of cars are broke

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Question 1199104: A car insurance plan pays $15,000 for a stolen car, $8,000 for a broken
car, and $5,000 for a damaged car. In the NY State every year, 2% of cars are
stolen, 5% of cars are broken, and 10% of cars are damaged.
Part a) What is the expected mean annual payment to a client μ?
Part b) What is the expected standard deviation of the annual payments to clients
σ?

Answer by ikleyn(52803)   (Show Source): You can put this solution on YOUR website!
.


                            My response consists of two parts.


(1)   First part is to say that the problem is worded / posed / formulated  INCORRECTLY.


**********************************************************************

                    Because one client may have more than one car,
            and we even don't know,  how many cars an average client does have.

**********************************************************************


The correct question,  instead of  (a),  should be

    a) What is the expected mean annual payment to a client per each one single care ? 


(2)   If you agree with this re-formulation,  then here is the second part of my post,
        which is the solution and the answer to this re-formulated question:

         Expected  mean annual payment to a client per each one single care is

             E = 0.02*15000 + 0.05*8000 + 0.1*5000 = 1200 dollars.     ANSWER

Solved.



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