• 100% Satisfaction Guarantee
Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7291
Experience:  Post Graduate Diploma in Management (MBA)
19873544
Linda_us is online now

# accident records collected by an automobile insurance complany

accident records collected by an automobile insurance complany give the following information:
the probability that an insured driver has an automobile accient is .15
if an accident has occured, the damage to the vehivle amounts to 20% of its market value with probabilty .8, 60% of its market value with .12, and a total loss with probabilty of .08
what premium should the copmlany charge on a 12000 dollar car so that the expected gain by the company is zero?

You need to spend \$3 to view this post. Add Funds to your account and buy credits.
Customer: replied 7 years ago.
can i more clarification on how you got it ?
like what probability algorithm you used, is that conditional probability ?
HiCustomer

Then the probability for accident happening is .15

Then we calculate the expected value of Damage if there is an accident which is = (12000*20%)*.80 + (12000*60%)*.12 + (12000*100%)*.08 = \$3744

Hence the Insurance premium to be charged is calculated by multiplying the probability of accident with expected damage value=\$3744*.15= \$561.60.

Its a conditional probability.

Regards Linda

Edited by linda_us on 10/29/2009 at 12:56 AM EST