Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / An insurance company specializes in insuring pets, but the insurance company has not yet decide how much it will charge its customers- let say M dollars
An insurance company specializes in insuring pets, but the insurance company has not yet decide how much it will charge its customers- let say M dollars. It has decided though that if an insurer’s pet is lost, the company will pay the insurer $10 000 for compensation and the company expects on average to earn $50 on each policy. Suppose the chance of losing a pet is 15%.
What should be the value of M?
Answer:
Consider 100 pets
No of pets lost will be 15
Amount to be paid a compensation = $150,000
Expectation of earning = 100 x 50 = $5000
Value of M have to cover for compensati and make earning
Thus, M = (150,000+5000)/100
=$1550
