Question 1008137
the probability of an individual house being hit by lightning = .0004


the cost of repair to damage by lightning = 7000 on the average.


the expected cost per house is therefore .0004 * 7000 = 2.8


the insurance company charges 22 per year.


their expected value is 22 - 2.8 = 19.2 per house per year.


suppose they sell the insurance policy to 100,000 houses.


they will get revenue of  22 * 100,000 = 2,200,000.


if .0004 of those houses get hit by lightning, .0004 * 100000 = 40 houses get hit by lightning each year on the average.


their cost will be 40 * 7000 = 280,000.


their net revenue will be 2,200,000 - 280,000 = 1,920,000


divide that by 100,000 and you get a net of 19.2 per house.


numbers look good.


the company's expected income per house = 19.2.


their expected income from 100,000 houses = 1,920,000.