A medical insurance policy covers a particular illness assuring a sum of $1,500,000. If the probability of the illness occurring is 0.0001 and the expected profit is $270 what is the premium that the company should charge?
To calculate the premium that the company should charge, we need to consider the expected profit and the probability of the illness occurring.
The expected profit is calculated by multiplying the probability by the sum assured and subtracting the premium. In this case, the expected profit is given as $270.
Let's denote the premium as "P" and the sum assured as $1,500,000.
Based on the information given, we can set up the equation:
Expected Profit = (Probability of Illness) * (Sum Assured) - Premium
$270 = 0.0001 * $1,500,000 - P
Now, we can solve for the premium:
$270 = $150 - P
$270 + P = $150
P = $150 - $270
P = -$120
Based on the calculation, the premium is -$120. This implies that the company should not charge any premium, but instead, they should provide the policy for free. However, this seems unrealistic.
It's possible that there might be a mistake in the calculation or missing information needed to accurately determine the premium.