MATH 131 - Unit 2 8/17 Class Activity 2 Example 2: Dan is pricing car insurance from a new company that only pays out at 3 levels: total, major accident and fender bender. His car is valued at $20,000. After reviewing his application, his insurance company assigned him to a group with the probabilities listed below. These values are used to figure the value the company must charge to cover their payouts. If the company charges a $200 service fee, what will be his annual premium? x, payout P(x) x . P(x) 20,000 total 0.010 10,000 major 0.020 2,000 fender bender 0.090 0 no accident ? Annual premium = Expected payout + Service fee E = _(x. P(x) ) Try it yourself: If you were buying a similar policy with your car also valued at $20,000, what probabilities for payout do you believe would be assigned. What should be your annual premium? x, payout P(x) x . P(x) 20,000 total 10,000 major 2,000 fender bender 0 no accident