With probabilities 0.8 0.1 0.08 and 0.02 respectively. a, Ask an Expert

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Let X be the damage incurred (in $) in a certain type of accident during a given year. Possible values for X are 0, $1000, $5000 and $10,000, with probabilities 0.8, 0.1, 0.08 and 0.02 respectively. A particular company offers a $500 deductible policy. If the company wishes its expected profit to be $100, what premium should it charge?

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