Math-Stats

posted by .

An insurance company charges its policy holders an annual premium of $200 for the following type of injury insurance policy. If the policy holder suffers a "major injury" resulting in lengthy hospitalization, the company will pay out $15,000 to the injured policy holder. If the policy holder suffers a "minor injury" resulting in significant absence from work, the company will pay out $4,000 to the injured policy holder. If no injury is encountered (the most probable event) the company, of course, does not payout anything to the policy holder.

Past records show that each year, 1 in every 2000 policy holders experience a "major injury" and 1 in every 500 experience a "minor injury.." Assuming that the only company expense related to this policy is the annual payout.

1. Construct a probability distribution table for "X" where "X" refers to the annual profit for this policy, where "X" = Annual Premium - Annual Payout.

2. Compute the expected annual profit that the company can expect to receive per policy holder.

  • Math-Stats -

    1/2000= 0.0005 produces a payout of - $14800.00

    1/500= 0.002 = 4/2000 produces a payout of -$3800

    399/400= 0.9975= 1995/2000 profits

    Question One
    Probability table is a follows

    X----(neg)14800---(neg)3800--200
    P(x)-1/2000-------4/2000-----1995/2000

    Question two

    Expect Value= mean= Sum of (frequency* probability)

    (-14800*(1/2000))+(-3800*(4/2000))+(200*(1995/2000)= 184.5 Annual profit for each individual policy holder.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. accounting

    I have to prepare an adjusting entry for Dec 31, 2008 for prepaid insurance from this: An analysis of the company's insurance policies provided these facts: Policy A Purchased on April 1, 2007 for 24 month at $11400. Policy B Purchased …
  2. ACCOUNTING plz help thnx

    I have to prepare an adjusting entry for Dec 31, 2008 for prepaid insurance from this: An analysis of the company's insurance policies provided these facts: Policy A Purchased on April 1, 2007 for 24 month at $11400. Policy B Purchased …
  3. ACCOUNTING

    I have to prepare an adjusting entry for Dec 31, 2008 for prepaid insurance from this: An analysis of the company's insurance policies provided these facts: Policy A Purchased on April 1, 2007 for 24 month at $11400. Policy B Purchased …
  4. Statistics

    A life insurance company sells a term insurance policy to a 21-year-old male that pays $100,000 if the insured dies within the next 5 years. The probability that a randomly chosen male will die each year can be found in mortality tables. …
  5. alisha

    a fire insurance policy has an annual premium of $780. what is the reguar refund if the policy is canceled by the insurance company after five months
  6. accounting

    A company has an insurance policy for fifty thousand dollars that is due. How is this set up when the company does not pay it in full. It is paid monthly to an insurance premium company within one year. How do we set it up on the company …
  7. math

    A fire insurance policy has an annual premium of $ 780. what is the regular refund if the policy is canceld by the insurance company after five months
  8. statistics

    An insurance company charges its policy holders an annual premium of $200 for the following type of injury insurance policy. If the policy holder suffers a "major injury" resulting in lengthy hospitalization, the company will pay out …
  9. consumer math

    amy miller's insurance policy has a $218.00 premium for 25/100 bodily injury limits and $25,000.00 property damage limits. the collision premium is $74.00. amy's driving-rating factor is 2.4. what is her annual premium?
  10. Precalculus

    Records from the buzz sawmill show that workers have 0.03 probability of losing a leg and a 0.04 probability of losing an arm in any one year. Armand leg casualty insurance company plans to offer insurance policies for the workers. …

More Similar Questions