An insurance company charges a customer an annual premium of $1200 to I insure a car against theft. In the event of theft a payment of $15 000 will be made to the customer. The probability of theft is empirically estimated to be 0.02. (a) (b) Find the expected value of the insurance policy to the customer. Find the premium which should be charged if the policy is to be fair.

An insurance company charges a customer an annual premium of $1200 to I insure a car against theft. In the event of theft a payment of $15 000 will be made to the customer. The probability of theft is empirically estimated to be 0.02. (a) (b) Find the expected value of the insurance policy to the customer. Find the premium which should be charged if the policy is to be fair.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 7MC

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