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    Calculating average Insurance Premium

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    See the attached file.

    This table shows claims and their probability for an insurance company.

    $0 0.65
    $50,000 0.25
    $100,000 0.06
    $150,000 0.02
    $200,000 0.01
    $250,000 0.01

    1. Calculate the expected value?
    2. How much should the company charge as an average premium so that it breaks even on its claim cost?

    3. How much should the company charge to make a profit of $50 per policy?

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    Solution Preview

    Please refer to attached documents for better clarity.

    1. Calculate the expected value?

    AMOUNT Probability Expected Value
    (1) (2) (1)*(2)
    $0 0.65 $0 ...

    Solution Summary

    Solution describes the steps involved in calculating average insurance premium by using probabilities of various claims.