Question

The table shows claims and their probabilities for an insurance company.
O A. (a)
O B. (a)
Amount of Claim
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Probability
0.60
0.25
0.09
0.04
0.01
0.01
O c. (a) $
OD. (a) $
(a) Calculate the expected value.
(b) How much should the company charge as an average premium so that it breaks even on its claim
costs?
(c) How much should the company charge to make a profit of $60 per policy?

Answer 1

Answer:

a) Expected Value of Claims = $32,000

b) Average premium per claim, in order to break-even on claim costs

= $5,333.33

c) To make a profit of $60 per policy (i.e. a total profit of $360 ($60 x 6), it must charge:

= $5,393.33 per policy

Step-by-step explanation:

a) Data and Calculations:

Amount of Claim      Probability   Expected Value

$0                               0.60             $0

$50,000                     0.25             $12,500

$100,000                   0.09                 9,000

$150,000                   0.04                 6,000

$200,000                  0.01                 2,000

$250,000                 0.01                 2,500

Expected Cost of claims =          $32,000

b) Average premium per claim, in order to break-even on claim costs

= Total Claim cost divided by number of policies

= $32,000/6 = $5,333.33

c) To make a profit of $60 per policy (i.e. a total profit of $360 ($60 x 6), it must charge:

Total Claim cost + Total profit / 6 or Average Premium plus Profit per policy =

= ($32,000 + $360)/6 or $5,333.33 + $60

= $32,360/6 or $5,393.33

= $5,393.33

Answer 2

The total expected value is $32000, the average premium so that it breaks even on its claim  costs are $5333.33 and the company charge to make a profit of $60 per policy is $5393.33.

Given :

The table shows claims and their probabilities for an insurance company.

Amount of Claim          Probability               Expected Value

$0                                      0.60                             0

$50000                             0.25                            $12500

$100000                            0.09                            $9000

$150000                            0.04                             $6000

$200000                           0.01                              $2000

$250000                            0.01                             $2500

A) So, the total expected value is = 12500 + 9000 + 6000 + 2000 + 2500

                                                   =  $32000

B) The average premium is given by:

$=\dfrac{32000}{6}$

= $5333.33

C) The company charge to make a profit of $60 per policy is:

$= \dfrac{32000+360}{6}$

$=\dfrac{32360}{6}$

= $5393.33

For more information, refer to the link given below:

https://brainly.com/question/21835898