document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1032264>Question 1032264</A>: <I><SPAN STYLE=\"word-break: break-all;\"> An insurance company has determined that in a certain region the probability of lightning striking a house in a given year is about 0.0004, and the average cost of repairs of lightning damage is $7000 per incident. The company charges $20 per year for lightning insurance.<BR>\n" );
document.write( "(a) What is the company's expected value for the net income from each lightning insurance policy in one year?<BR>\n" );
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document.write( "(b) If the company has 450,000 lightning damage policies, what is the company's expected yearly income from lightning insurance?<BR>\n" );
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document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #646917 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=646917\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> expected value per customer = 20 - .0004 * 7000 = 17.2\r<BR>\n" );
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document.write( "with 450,000 customers, this comes out to 450,000 * 17.2 = 7,740,000 dollars of net income per year.\r<BR>\n" );
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document.write( "look at it from another angle.\r<BR>\n" );
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document.write( "450,000 customers * 20 per customer = gross income of 9,000,000 per year.\r<BR>\n" );
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document.write( "an average of .0004 * 450,000 customers will experience a lightning strike each year. \r<BR>\n" );
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document.write( "that equals 180 customers per year.\r<BR>\n" );
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document.write( "they receive an average of 7000 each in compensation.\r<BR>\n" );
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document.write( "that's 180 * 7,000 = 1,260,000 per year is spent in compensation.\r<BR>\n" );
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document.write( "9,000,000 minus 1,260,000 equals net income of 7,740,000 per year.\r<BR>\n" );
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document.write( "their expected value is 7,740,000 per year.\r<BR>\n" );
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