An auto insurance company is implementing a new bonus system. In each month,if a policyholder does not have an accident, he or she will receive a 6.00 cash-back bonus from the insurer. Among the 1,000 policyholders of the auto insurancecompany, 3500 are classified as low-risk drivers and 650 are classified as high-riskdrivers. In each month, the probability of zero accidents for high-risk drivers is.75 and the probability of zero accidents for low-risk drivers is .90. Calculate theexpected bonus payment from the insurer to the 1,000 policyholders in one year.

Given Number of Policy Holders = 1000 Low Risk Drivers = 350 High Risk Drivers = 650

Answered: An auto insurance company is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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