"Atrap and Bracken are two rival insurance companies. Atrap and Bracken have premiums of $150 and $100 and deductibles of $2,500 and $3,500 respectively. The average expense of surgery is $25,000. If after 5 years, 25 of the 1,000 people registered with Bracken have gone through surgery, where does Bracken stand in terms of gains or losses?
A. $41,100
B. $39,700
C. −$36,600
D. −$37,500
E. −$43,000
Answer:
Option D
Bracken's loss over 5 years is $37,500
Solution:
According to question,
Atrap and Bracken have premiums of $150 and $100 and deductibles of $2,500 and $3,500 respectively
The number of people registered with Bracken are 1000
So, In 5 years Bracken would have earned an income of:
Now, if 25 out of 1000 registered have undergone surgery. Average surgery expense given to be $25,000
Out of which $3,500 is deductible.
So Bracken's total expense per client is (25,000 - 3,500) = $21,500
For 25 patients, it will be
From above we found expenses of $537,500 is more than income of $500,000, Bracken incurs a loss of $37,500 (500,000 - 537,500) over 5 years.
Therefore, Bracken's loss over 5 years is $37,500