Paula earns $40,000 per year and rides her bicycle to work.There is a 1% chance that she will break her leg in the next year and a 99% chance that she won't be hurt at all.Medical bills for a broken leg are estimated at $4,000.If Paula buys full health insurance at an actuarially fair premium,what is the premium she will pay for the next year?

Question

Quizplus · Accepted Answer

The actuarially fair premium is calculated by multiplying the cost of the event ($4,000 for the broken leg) by the probability of the event occurring (1% or 0.01). So, $4,000 * 0.01 = $40.

Paula Earns $40,000 Per Year and Rides Her Bicycle to Work.There