document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1100878>Question 1100878</A>: <I><SPAN STYLE=\"word-break: break-all;\"> uppose you set insurance prices for an insurance company. The insured object is a Dutch oven. With probability 0.02 the lid will need to be replaced and it will cost $50, with probability 0.01 the pot will need to be replaced and it will cost $200. Your boss wants the insurance policy to generate $9 of expected profit. What should be the price of the insurance policy? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #715493 by </B><A HREF=/tutors/aboutme.mpl?userid=stanbon><B>stanbon(75887)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=stanbon><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/images/nopicture.jpg><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=715493\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\">  Suppose you set insurance prices for an insurance company. The insured object is a Dutch oven. With probability 0.02 the lid will need to be replaced and it will cost $50, with probability 0.01 the pot will need to be replaced and it will cost $200. Your boss wants the insurance policy to generate $9 of expected profit. What should be the price of the insurance policy?<BR>\n" );
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document.write( "Let expected gain be $9<BR>\n" );
document.write( "Let the premium price be \"x\"<BR>\n" );
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document.write( "Random gain::: (50-x).....(200-x).....(250-x)....x<BR>\n" );
document.write( "Probabilities:...0.02.......0.01......0.0002....0.9698 <BR>\n" );
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document.write( "0.02(50-x)+0.01(200-x)+0.0002(250-x)+0.9698x = 9<BR>\n" );
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document.write( "1-0.02x+2-0.01x+0.05-0.0002x+0.9698x = 9<BR>\n" );
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document.write( "5.95 = 0.9396x<BR>\n" );
document.write( "x = $6.33<BR>\n" );
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document.write( "Cheers,<BR>\n" );
document.write( "Stan H.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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