[tex]\$680[/tex] money can the insurance company expect to make with each policy sold .
Step-by-step explanation:
Here we have , A flood insurance company sells policies for $700 per year. If a customer's house is flooded, they are given $250,000 for repairs. The insurance company has calculated the chances that a house is flooded to be 1/12,500 over the year. We need to find , How much money can the insurance company expect to make with each policy sold . Let's find out:
Probability for flooding is 1/12,500 i.e. out of 12,500 people only 1 house is flooded , Amount of money collected by 12,500 people is :
⇒ [tex]12500(700)[/tex]
⇒ [tex]\$8,750,000[/tex]
But Company will give $250,000 for repairs . So , Amount of money :
⇒ [tex]8,750,000-2,50,000[/tex]
⇒ [tex]\$8,500,000[/tex]
Now , this money is from 12,500 people , so from every person they had:
⇒[tex]\frac{8,500,000}{12500}[/tex]
⇒[tex]\$680[/tex]
Therefore , [tex]\$680[/tex] money can the insurance company expect to make with each policy sold .
