Answer: 0.86 or 86%
Explanation:
To calculate the probability that a new insured with an unknown accident history will be accident-free in the second year of coverage, we can use conditional probability.
Let's define the following events:
A: Insured had no accidents last year
B: Insured is accident-free this year
Given information:
i) P(A) = 0.70 (probability that a new insured had no accidents last year)
ii) P(B | A) = 0.80 (probability that an insured who was accident-free last year will be accident-free this year)
iii) P(B | A') = 0.60 (probability that an insured who was not accident-free last year will be accident-free this year)
We want to find P(B), which is the probability that an insured is accident-free this year, regardless of their accident history last year.
We can use the law of total probability to calculate P(B):
P(B) = P(A) * P(B | A) + P(A') * P(B | A')
P(B) = 0.70 * 0.80 + (1 - 0.70) * 0.60
P(B) = 0.56 + 0.30
P(B) = 0.86
Therefore, the probability that a new insured with an unknown accident history will be accident-free in the second year of coverage is 0.86.