An insurance company is considering offering a new type of insurance policy for homeowners. The company estimates
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Question:
An insurance company is considering offering a new type of insurance policy for homeowners. The company estimates that the probability of a homeowner making a claim on the policy is 10%. The company also estimates that the average cost of a claim is $10,000 with a standard deviation of $5,000. If the company charges a premium of $1,500 per year, what is the expected profit and what is the risk associated with this policy?
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