An insurance company will insure a $75,000 particular make and model of car for its full value against theft at a premium of $1,500 per year. Suppose that the probability that this particular automobile make and model will be stolen is .0075. Calculate the expected net profit for the insurance company.
A) $937.50
B) $551.25
C) $1488.75
D) $562.50

Question

Quizplus · Accepted Answer

μ_x = (−73,500)(.0075) + (1500)(.9925) = −551.25 + 1488.75 = 937.50

An Insurance Company Will Insure a $75,000 Particular Make and Model