Question

An insurance company has a merit rating system for customers who have not filed a claim in the previous year. For each year that a customer does not file a claim, their rate is reduced by 10%, and a credit of $5 is awarded. If a customer did not file a claim in the nth year, which equation shows the customer's rate in the (n + 1)th year as a function of their rate in the nth year?

A.
f(n + 1) = f(n) - 0.1f(n) - 5
B.
f(n + 1) = f(n) - 0.1f(n) + 5
C.
f(n + 1) = f(n) + 0.1f(n) + 5
D.
f(n + 1) = f(n) - 0.1f(n) - 10

Answer 1

Answer: B

Explanation:

For each year that a customer does not file a claim, their rate is reduced by 10%,

This means that every year that passes, we have a subtraction of a 10% (or 0.1 in decimal form)

And also for each yearm we have a credit of $5 awarded, this means that we have an addition of $5.

Then the relation is:

f(n + 1) = f(n) - 0.10*f(n) + $5

The correct option is B