Question

Paula earns $40,000 per year and rides her bicycle to work. There is a 1% chance that she will break her leg in the next year and a 99% chance that she won't be hurt at all. Medical bills for a broken leg are estimated at $4,000. If Paula buys full health insurance at an actuarially fair premium, what is the premium she will pay for the next year?

Answer 1

$40

Step-by-step explanation:

The computation of the premium pay for the next year is shown below:

= Estimated medical bills × given percentage for next year

= $4,000 × 1 %

= $40

By multiplying the estimated value of medical bills with the next year given percentage, the premium for the next year can come

All other information that is given in the question is not relevant. Hence, ignored it