Find the expected value.
-An insurance policy sells for $750. Based on past data, an average of 1 in 80 policyholders will file a $10,000 claim, an average of 1 in 140 policyholders will file a $20,000 claim, and an average of 1 in
200 policyholders will file a $50,000 claim. What is the expected value to the company per policy
Sold?

Question

Quizplus · Accepted Answer

The expected value is the sum of the products of the probabilities and the payoffs. The probability of a $10,000 claim is 1/80, the probability of a $20,000 claim is 1/140, and the probability of a $50,000 claim is 1/200. The expected value is therefore:(1/80) * $10,000 + (1/140) * $20,000 + (1/200) * $50,000 = $232

Find the Expected Value