Suppose a company charges an annual premium of $475 for a fire insurance policy.

Question

Suppose a company charges an annual premium of $475 for a fire insurance policy. In case of a fire claim, the company will pay out an average of $100,000. Based on actuarial studies, it determines that the probability of a fire clime in a year is 0.004. What is the expected annual profit of a fire insurance policy for the company? What annual profit can the company expect if it issues 1000 policies? Suppose a company charges an annual premium of $140 for an insurance policy for minor injuries. Actuarial studies show that in case of an injury claim, the company will pay out an average of $900 for outpatient care and an average of $3000 for an overnight stay in the hospital. They also determine that, on average, each year there are five claims made that result in outpatient care for every 1000 policies and three claims made that result in an overnight stay out of every 1000 policies. What is the expected annual profit of an insurance policy for the company? In roulette, you may bet whether the number that comes up is odd (or even). (Remember that 0 does not count as either odd or even.) The wager pays even money, that is. If you win, you get whatever you bet, and if you lose, you lose that same amount. What is your expected value for this bet? ()

Explanation / Answer

8) expected cost per policy for outpatient care =5*900/1000=$4.5

and expected overnight stay cost per policy =3*3000/1000=$9

hence expected profit per policy =140-4.5-9=$126.5

please revert

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