Use the following to answer question:
-(Scenario: Choosing Insurance)Use Scenario: Choosing Insurance.The premium on a fair insurance policy for the Ramirez family will be: Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50,000;in state 2,their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%,while the probability of no repairs is 90%.
A)$0.
B)$900.
C)$1,000.
D)$2,000.

Question

Use the following to answer question: 
-(Scenario: Choosing Insurance)Use Scenario: Choosing Insurance.The premium on a fair insurance policy for the Ramirez family will be: Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50,000;in state 2,their cars need $10,000 worth of repairs and their income available for purchasing other goods and services is reduced to $40,000.The probability of repairs is 10%,while the probability of no repairs is 90%.
A)$0. 
B)$900. 
C)$1,000. 
D)$2,000.

Quizplus · Accepted Answer

The fair insurance premium is calculated as the expected loss, which is the probability of the loss occurring multiplied by the amount of the loss. Here, the expected loss is 10% of $10,000, which equals $1,000.

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