Question

A company charges $120 for an accident policy. If the person is injured by a vehicle, the company will pay $500. If the person is injured on the job, the company will pay $800. It has been found that five out of 900 claims are filed for vehicular injury and seven out of 900 claims are for an on the job accident. What is the expected annual profit for this policy for the company? Answer:

Answer 1

Assuming that the total number of people that pay the $120 are the 900 that claim the policy, and assuming that out of the 900 cases only the vehicular and job related policies are covered, then the profit for this policy will be:

$p=900(120)-5(500)-7(800)\Rightarrow p=99900$

So, under those assumptions, the profit would be $99 900.