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    Calculating premium amount

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    Accident records given by an insurance company give the following information. The probability that an insured driver has an accident is 0.15. If an accident occurs, the damage to the vehicle amount to 20% of its market value 80% of the time, to 60% of its market value with probability 0.12, and a total loss with a probability of 0.08. What premium should the company charge on a $12,000 car so that the expected gain on the insurance is $100?

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    Solution Preview

    In case of accident, Expected Damage=Summation of (Probability of damage extent* % extent damage)

    Solution Summary

    Solution describes the steps to calculate the premium amount for the given coverage.