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    Insurance Net Gain

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    An insurance company sells $300 deductible annual automobile insurance policies to a certain category (age, driving records) for $1000.00 The insurance company has set four different accident types, and the probabilities associated with each accident type are given in the table below:

    Type of accident Probability
    No accident 0.98
    Damage caused=$1000 0.01
    Damage caused=$3000 0.005
    Damage caused=$5000 0.004
    Damage caused=$10000 0.001

    Let X be the net gain in the insurance company. Construct a tabular probability distribution for X.

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    Solution Summary

    This solution analyzes the net gain for an insurance company given the probability of damages caused and the insurance premium.