Problem 2: You have $1,000,000 worth of equipment at the job site and wish to minimize...
Problem 2:
You have $1,000,000 worth of equipment at the job site and wish to minimize your risk of direct property damage by taking out an insurance policy. The insurance company provides you with its statistical data as shown below:
If the insurance company uses expected value to calculate premiums, then how much would you expect the premium to be, assuming the insurance company adds on $300 for handling and profit?
Support your answer with a proper explanation.
Homework Answers
Amount of premium = Sum of (Probability*Amount of damage* Value of property) + $300 for handling and profit
= =0.02%*100%*1000000+ 0.08%*40%*1000000+ 0.1%*20%*1000000 + 300
= 720+300
=$1020
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