Question

Let X be the damage incurred (in dollars) in a certain type of accident in a...

Let X be the damage incurred (in dollars) in a certain type of accident in a given year. Possible X values are 0, 1000, 5000, and 10000 with probabilities .75, .15, .08, and .02, respectively. A particular company offers a $500 deductible policy. If the company wishes its expected profit to be $100, what premium amount should it charge?

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Answer #1

Solution:

Given that:

Possible X values = 0,1000,5000,10000

Probabilities = .75, .15, .08 and .02

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