Question

An insurance company sells a homeowner's insurance policy that is $600 per year per policy. The insurance company predicts that the probability of having a home being damaged in the area it sells this policy is about 11,000. If the home is damaged, the insurance company expects to pay $400,000 to the homeowner. If the company were to sell 250 policies, how much money can it expect to gain or lose

Answer 1

profit of $140,910

there is a missing number I will assume that the probability is 1 in 11,000

company expected revenue per policy = $600

companies expected expense = 400,000 * (1/11,000) = -36.36

profit per policy = $536.64

$536.64*250 = $140,910

Explanation: