50. Insurance. An insurance company charges an annual pre- mium of $75 for a $200,000 insurance policy against a house burning down. If the (empirical) probability that a house burns down in a given year is .0003, what is the expected value of the policy to the insurance company?
50. Insurance. An insurance company charges an annual pre- mium of $75 for a $200,000 insurance policy against a house burning down. If the (empirical) probability that a house burns down in a given year is .0003, what is the expected value of the policy to the insurance company?
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Please help with #50
Transcribed Image Text:**Section 8.5 Random Variable, Probability Distribution, and Expected Value**
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**48.** A 3-card hand is dealt from a standard deck. You win $100 for each king in the hand. If the game is fair, how much should you lose if the hand contains no kings?
**Applications**
**49. Insurance.** The annual premium for a $5,000 insurance policy against the theft of a painting is $150. If the (empirical) probability that the painting will be stolen during the year is 0.01, what is your expected return from the insurance company if you take out this insurance?
**50. Insurance.** An insurance company charges an annual premium of $75 for a $200,000 insurance policy against a house burning down. If the (empirical) probability that a house burns down in a given year is 0.0003, what is the expected value of the policy to the insurance company?
**51. Decision analysis.** After careful testing and analysis, an oil company is considering drilling in two different sites. It is estimated that site A will net $30 million if successful (probability 0.2) and lose $3 million if not (probability 0.8); site B will net $70 million if successful (probability 0.1) and lose $4 million if not (probability 0.9). Which site should the company choose according to the expected return for each site?
**52. Decision analysis.** Repeat Problem 51, assuming that additional analysis caused the estimated probability of success...
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