An insurance company will insure a $75,000 particular automobile make and model for its full value against theft at a premium of $1500 per year. Suppose that the probability that this particular make and model will be stolen is .0075. Find the premium that the insurance company should charge if it wants its expected net profit to be $2000.
A) $1437.50
B) $2551.25
C) $2562.50
D) $2062.50

Question

Quizplus · Accepted Answer

2000 = (x − 75,000)(.0075) + x(.9925) = .0075x − 562.5 + .9925x = 2562.5

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