Accident records collected by an automobile insurance

Chapter 3, Problem 206SE

(choose chapter or problem)

Get Unlimited Answers
QUESTION:

Problem 206E

Accident records collected by an automobile insurance company give the following information. The probability that an insured driver has an automobile accident is .15. If an accident has occurred, the damage to the vehicle amounts to 20% of its market value with a probability of .80, to 60% of its market value with a probability of .12, and to a total loss with a probability of .08. What premium should the company charge on a $12,000 car so that the expected gain by the company is zero?

Questions & Answers

QUESTION:

Problem 206E

Accident records collected by an automobile insurance company give the following information. The probability that an insured driver has an automobile accident is .15. If an accident has occurred, the damage to the vehicle amounts to 20% of its market value with a probability of .80, to 60% of its market value with a probability of .12, and to a total loss with a probability of .08. What premium should the company charge on a $12,000 car so that the expected gain by the company is zero?

ANSWER:

Answer:

Step 1 of 1:

The probability that an insured driver has an accident is

If an accident has occurred, the damage to the vehicle amounts to  of its price with a probability of  to 60% of its price with a probability of  and to a total loss with a  probability of

What premium should the company charge on a  car price so that the expected gain by the company is zero?

Let  represent the gain to the insurance company for a particular insured driver.

Let  be the premium charged to the car driver.

Using above information, we can form the probability distribution for

Add to cart


Study Tools You Might Need

Not The Solution You Need? Search for Your Answer Here:

×

Login

Login or Sign up for access to all of our study tools and educational content!

Forgot password?
Register Now

×

Register

Sign up for access to all content on our site!

Or login if you already have an account

×

Reset password

If you have an active account we’ll send you an e-mail for password recovery

Or login if you have your password back