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An insurance policy sells for $500. Based on past data, An average of 1 in 100 policyholders will...

Question:

An insurance policy sells for $500. Based on past data, An average of 1 in 100 policyholders will file a $10,000 claim, an average of 1 in 150 policyholders will file a $40,000 claim, and an average of 1 in 200 policyholders will file a $90,000 claim.

(a) Find the expected value (to the company) per policy sold.

(b) If the company sells 50,000 policies what is the expected profit or loss?

Expected value

The expected value is a statistical value which is used as the central value of the data, this is an estimated value of the population data and sample data, the calculation of variance is also used the expected value.

Answer and Explanation:

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Given information

Per policy, the cost is 500

1 in 100 policyholders will claim is 10000.

1 in 150 policyholders will claim is 40000.

1 in 200...

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Evaluating the Expected Value of Sample Information

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Chapter 5 / Lesson 10
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Many companies consider doing surveys and market research but are not sure whether the expense is worth the data that will be collected. This lesson helps explain how to calculate the expected value of sample information.


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