Question

the table shows claims and their probabilities for an insurance company. use the table to answer parts a through c.

amount of claim (to the nearest $50,000)	probability
$50,000	0.21
$100,000	0.07
$150,000	0.05
$200,000	0.01
$250,000	0.01

a. calculate the expected value.
$ 29500
b. how much should the company charge as an average premium so that it breaks even on its claim costs?
$ 29500
c. how much should the company charge to make a profit of $50 per policy?
$

Explanation:

Step1: Recall the break - even premium

From part b, we know that the break - even premium (the premium to cover claim costs) is the expected value, which is $29500.

Step2: Add the desired profit

To make a profit of $50 per policy, we need to add this profit to the break - even premium. So we calculate $29500 + 50$.
$29500+50 = 29550$

Answer:

$29550$