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An insurance company writes a policy to the effect that an
Chapter 4, Problem 27P(choose chapter or problem)
Problem 27P
An insurance company writes a policy to the effect that an amount of money A must be paid if some event E occurs within a year. Tf the company estimates that E will occur within a year with probability p, what should it charge the customer in order that its expected profit will be 10 percent of A?
Questions & Answers
QUESTION:
Problem 27P
An insurance company writes a policy to the effect that an amount of money A must be paid if some event E occurs within a year. Tf the company estimates that E will occur within a year with probability p, what should it charge the customer in order that its expected profit will be 10 percent of A?
ANSWER:
Answer
Step 1 of 1
(a)
Let an amount of money paid for some event with probability
We are asked to find the charge to the customer in order that its expected profit will be