157k views
5 votes
XYZ Insurance isues 1-year policies: i) The probability that a new insured had no accidents last year is 0. 70 ii) The probability that an insured who was accident-free last year will be accident-free this year is 0. 80 iii)The probability that an insured who was not accident-free last year will be accident-free this year is 0. 60 What is the probability that a new insured with an unknown accident history will be accident-free in the sccond year of coverage?

User Sarien
by
8.7k points

1 Answer

2 votes

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.

User Bitmusher
by
8.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories