# Expected value of an insurance policy

Not what you're looking for?

1. You own a $9,000 car and a $850 mountain bike. The probability that your car will be stolen next year is 0.02, but the probability that your bike will be snatched is 0.1. An insurance company offers you theft insurance for your car for $200 and the insurance for your bike for $75.

a) Compute the expected value of the car and bike insurance policy to the insurance company.

b) As an insurance policy holder, do you get a "good deal" from this car and bike insurance? Explain your response.

Thanks

##### Purchase this Solution

##### Solution Summary

This post answers how to calculate the expected value of an insurance policy to the insurance company and discuss whether the deal is good for the insuree.

##### Solution Preview

Question 1:

Car Insurance

Cost of car = $9,000

Probability of loss due to theft = 0.02

Expected cost of loss = 0.02*9000=$180

Premium on car insurance = $200

Expected value of car insurance policy to the insurance company = $200-$180=$20.00 per policy

Bike Insurance

Cost of bike = $8,50

Probability of loss ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

##### Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

##### Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.

##### Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.