Solve the problem.
-An insurance company will insure a $240,000 home for its total value for an annual premium of $580. If the company spends $30 per year to service such a policy, the probability of total loss for Such a home in a given year is 0.001 and you assume either total loss or no loss will occur, what is The companyʹs expected annual gain (or profit) on each such policy?
A) $310
B) $340
C) $260
D) -$240

Question

Quizplus · Accepted Answer

The expected annual gain is the premium minus the service cost minus the expected loss. The expected loss is the probability of loss times the amount of loss. In this case, the expected loss is 0.001 * $240,000 = $240. So the expected annual gain is $580 - $30 - $240 = $310.

Solve the Problem. -An Insurance Company Will Insure a $240,000 Home for Its