Question

A company employing 10,000 workers offers deluxe medical coverage (D), standard medical coverage (S) and economy medical coverage (E) to its employees. Of the employees, 30% have D, 60% have 5 and 10% have E. From past experience, the probability that an employee with D, will submit no claims during next year is 0.1. The corresponding probabilities for employees with S and E are 0.4 and 0.7 respectively. If an employee is selected at random;

a) What is the probability that the selected employee has standard coverage and will submit no

claim during next year? b) What is the probability that the selected employee will submit no claim during next year?

c) If the selected employee submits no claims during the next year, what is the probability that the employee has standard medical coverage (S)?
please give full answer
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Answer 1

To answer these questions, we can use the information given about the proportions of employees with each type of coverage and the probability of no claims for each type of coverage.

a) The probability that the selected employee has standard coverage is 60%, and the probability that they will submit no claims is 0.4. Therefore, the probability that the selected employee has standard coverage and will submit no claims is 0.4 * 0.6 = 0.24.

b) To find the probability that the selected employee will submit no claims, we can add up the probabilities for each type of coverage. The probability that the selected employee will submit no claims is 0.1 * 0.3 + 0.4 * 0.6 + 0.7 * 0.1 = 0.33.

c) To find the probability that the selected employee has standard coverage given that they have no claims, we can use Bayes' Theorem. The probability that the selected employee has standard coverage given that they have no claims is:

P(S|N) = P(N|S) * P(S) / P(N)

Plugging in the values from the problem, we get:

P(S|N) = 0.4 * 0.6 / 0.33 = 0.73

Therefore, the probability that the selected employee has standard coverage given that they have no claims is 0.73.