SOLUTION: An insurance company charges $400 for a policy. They expect a 1% chance of a $100 payout for injuries, a 4% chance of a $50 payout for injuries, and a .3% chance of a $150,000 payo
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-> SOLUTION: An insurance company charges $400 for a policy. They expect a 1% chance of a $100 payout for injuries, a 4% chance of a $50 payout for injuries, and a .3% chance of a $150,000 payo
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Question 847841: An insurance company charges $400 for a policy. They expect a 1% chance of a $100 payout for injuries, a 4% chance of a $50 payout for injuries, and a .3% chance of a $150,000 payout for injuries. What is the expected value of a policy? Answer by swincher4391(1107) (Show Source):
You can put this solution on YOUR website! The company makes $400 off of the policy. Now the E[payout] = .01*100 + .04*50 + .003*150000 = 453
So the expected value is 400 -453 = -$53
