Assume that you have a car worth $7300 and you wish to insure it for its full replacement value if it is stolen. If there is a 2% chance that the car will be stolen, what would a fair premium price be?
A. $133.94

B. $152.98

C. $148.98

D. $161.30

Question

Assume that you have a car worth $7300 and you wish to insure it for its full replacement value if it is stolen. If there is a 2% chance that the car will be stolen, what would a fair premium price be? 
 A. $133.94  
 
 B. $152.98  
 
 C. $148.98  
 
 D. $161.30

jim_thompson5910 · Answer

P(Stolen)*(Gain) + P(Not stolen)*(Gain) = 0

0.02*(-7300) + (1-0.02)x = 0

-146 + 0.98x = 0

0.98x = 146

x = 146/0.98

x = 148.97959

which to the nearest penny rounds to x = 148.98


So a fair premium price would be $148.98