Question

An insurance policy sells for $600. Based on past data, an average of 1 in 50 policyholders will file a $5,000 claim, and average of 1 in 100 policyholders will file a $10,000 claim, and an average of 1 in 200 policyholders will file a $30,000 claim. What is the expected value per policy sold?

Answer 1

$250

Explanation:

Calculation to determine the expected value per policy sold

Expected value​ per policy sold =$600-(1/50)*$5,000-(1/100)*$10,000-(1/200)*$30,000

Expected value​ per policy sold =$600-$100-$100-$150

Expected value​ per policy sold =$250

Therefore the expected value per policy sold will be $250