Let X be the damage incurred (in $) in a certain type of accident during a given year. Possible X values are 0, 1000, 5000, and 10000, with probabilities 0.84, 0.10, 0.04, and 0.02, respectively. A particular company offers a $500 deductible policy. If the company wishes its expected profit to be $100, what premium amount should it charge?

Question

mhchen · Answer

E(X) = 500. Expected damage incurred for someone is 500. If the company offers a 500 deductible, wouldn't that mean that the customer would pay the damage in full?  So how does the insurance money get its profit from this.

I've tried answers: 100,600,400, They all didn't work.

mhchen · Answer

https://www.chegg.com/homework-help/questions-and-answers/let-x-damage-incurred-certain-type-accident-given-year-possible-x-values-0-1000-5000-10000-q5754925 Thank goodness for chegg and textsheet.com I will use this as a reference