An insurance company will insure your dorm room against theft for a semester. Su
ID: 3203165 • Letter: A
Question
An insurance company will insure your dorm room against theft for a semester. Suppose the value of your possessions is $800. The probability of your being robbed of $400 worth of goods during a semester is 1 / 100 , and the probability of your being robbed of $800 worth of goods is 1 / 400 . Assume that these are the only possible kinds of robberies. How much should the insurance company charge people like you to cover the money they pay out and to make an additional $20 profit per person on the average?
Explanation / Answer
Solution :-
The probability of your being robbed of $400 worth of goods during a semester is 1 / 100
the probability of your being robbed of $800 worth of goods is 1 / 400
Let the range of a discrete random variable X be a sequence of numbers x1, x2, · · · , xk, and let p(x) be the corresponding probability mass function.
Then the expected value of X is E(X) = x1p(x1) + x2p(x2) + · · · + xkp(xk)
= 400 x 1/100 + 800 x 1/400
= 4 + 2 = 6
The insurance company charge people like you to cover the money they pay out and to make an additional $20 profit per person on the average = 20 + 6 = $26
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.