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An insurance company wants to estimate the premium to be charged for a $200,000 homeowner's policy that covers fire, theft, vandalism, and natural calamities. Flood and earthquakes are not covered. The company has estimated from historical data that a total loss may happen with a probability of 0.0005, a 50% loss with a probability of 0.001, and a 25% loss with a probability of 0.01.

Ignoring all other losses, what premium should the company charge to make an average net profit of 1.5% of the policy's face value?

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Statistics and Probability, Statistics

Category:- Statistics and Probability
Reference No.:- M92194313

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