Independent Assessment 3
Body Parts Insurance An insurance company will sell a P500,000.00 one-year term leg insurance policy for ramp models for a premium of P1,000.00. Find the expected value to the company of a single policy if a model has a 99.97% chance of being uninjured in one year?
Compare your answers with those found in the Answer Key on the last part of this module. Did you get all items correct? Great! If you did, you learned the lesson well. If you were not able to get the correct answer, review your computations.
Body Parts Insurance An insurance company will sell a P500,000.00 one-year term leg insurance policy for ramp models for a premium of P1,000.00. Find the expected value to the company of a single policy if a model has a 99.97% chance of being uninjured in one year?
Compare your answers with those found in the Answer Key on the last part of this module. Did you get all items correct? Great! If you did, you learned the lesson well. If you were not able to get the correct answer, review your computations.
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Therefore, the expected value to the company of a single policy = P 850.
Given:
An insurance company will sell P 500,000.00 one year term by insurance policy for ramp models for a premium P 1,000.00.
To find:
The expected value to the company
Solution:
Let us suppose that X is value to be paid then 1000 - E (X) will be the expected value of the company of a single policy.
X P(x) X(px)
0 99x97% = 0.9997 0
500,000 1 - 0.9997 = 0.0003 150
E xp(x) = 150
= 850
so answer is P 850.