Question 764089: An insurance company charges a homeowner $895 a year for total loss coverage on a 325,000 policy. if the homeowner is only insured for total loss and there is a .00085 probability of such a loss,find the insurance company's expected value on the policy.
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! An insurance company charges a homeowner $895 a year for total loss coverage on a 325,000 policy. if the homeowner is only insured for total loss and there is a .00085 probability of such a loss,find the insurance company's expected value on the policy.
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Random "gain" for the company: 895:::::: -324105
Corresponding probabilities::: 0.9992::: 0.00085
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Expected "gain" = 0.9992*895 -0.00085*324105 = $618.75
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Cheers,
Stan H.
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