Insurance - An insurance policy cost SI00 and will pay policy holders $10,000 if

Question

Insurance - An insurance policy cost SI00 and will pay policy holders $10,000 if they suffer a major injury (resulting in hospitalization) or $3000 if they suffer a minor injury (resulting in lost time from work). The company estimates that each year 1 in every 2000 policy holders may have a major injury, and 1 in 500 a minor injury only. (Exercise 32 from the book - show full working) Create a probability model for the profit policy? What is the company's expected profit on this policy? What is the standard deviation?

Explanation / Answer

Insurance - An insurance policy cost SI00 and will pay policy holders $10,000 if

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