Problem 8E

An automobile insurance company divides customers into three categories, good risks, medium risks, and poor risks. Assume that 70% of the customers are good risks, 20% are medium risks, and 10% are poor risks. As part of an audit, one customer is chosen at random.

a. What is the Probability that the customer is a good risk?

b. What is the probability that the customer is not a poor risk?

Answer:

Step 1 of 2:

(a)

In this question, we are asked to find the probability that the customer is a good risk.

Given data:

of customers are good risks.

of customers are medium risks.

of customers are poor risks.

Since given data is in percentage.

We can say out of 100, 70 customers are good risks.

Hence our probability would be

=

= = 0.7

Hence the probability that the customer is a good risk is 0.70.