40) An insurance company will insure a $220,000 home for its total value for an

Question

40) An insurance company will insure a $220,000 home for its total value for an annual premium of $520. If the company spends $30 per year to service such a policy, the probability of total loss for such a home in a given year is 0.001 and you assume either total loss or no loss will occur, what is the company's expected annual gain (or profit) on each such policy? A) $220 B)-$220 C) $270 D) $300 41) A commercial building contractor is trying to decide which of two projects to commit her company to. Project A will yield a profit of $50,000 with a probability of 0.6, a profit of $82,000 with a probability of 0.3, and a profit of $10,000 with a probability of 0.1. Project B will yield a profit of $100,000 with a probability of 0.1, a profit of $67,000 with a probability of 0.7, and a loss of $20,000 with a probability of 0.2. Find the expected profit for each project. Based on expected values, which project should the contractor choose? A) Project A:$55,600 B) Project A: $55,600 Project B: $52,900 Contractor should choose project A Project B: $60,900 Contractor should choose project B C) Project A: $46,600 D) Project A: $47,333 Project B: $52,900 Contractor should choose project B Project B: $49,000 Contractor should choose project A

Explanation / Answer

40)

if we assume a total loss (220,000) and the probability rate for a total loss, we will calculate (.001 per home) we can calculate the probable expected loss on this home

.001 X 220000=$220

because it costs an additional $30 a year to service the policy, it's total costs are $250 (220 + 30).

since the annual premium is $520 (coming in), and the annual expenditure on this policy is 250 (going out), the expected profit is 520-250 = 270 (profit)

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.