Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 3. you are considering the purchase of a simple in

3. You are considering the purchase of a simple insurance policy on your home. The...

80.2K

Verified Solution

Question

Finance

image
image
3. You are considering the purchase of a simple insurance policy on your home. The annual premium is $1,500. For this simplified example, let's assume that the probability of no loss occurring during the policy year is 95%. In that case, your net financial benefit is the full premium amount, so the net impact is -$1,500. The probability of a small loss ($1,000) is 396, in which case your net financial impact would be -$500 (the premium you paid plus the loss the policy covers) ( $1,500 $1,000). The probability of a moderate loss ($10,000) is 1.8%. The probability of a total loss ($400,000) is 0.2% What is the expected value of the net financial impact for you? (show calculations) Would you buy a policy like this? Why? How is this different from the raffle in problem #2? For the insurance company, the financial impact is the premium they collect from you

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

What is the main concept of Max Webers theory?

Psychology
Q

Identify the organism shown here

Biology
Q

Have balance To avoid a biased article research contradicting evidence and determine how if you...

Biology
Q

There is a housing lottery in a college for five houses among fifteen students, three...

Statistics
Q

why is " IT"metrics important also measurements, effectiveneas and efficiency

Accounting
Q

A hurricane damages your roadside vegetable stand. You claim a deductible loss of $15,000. Insurance...

Accounting
Q

Prior to reaching the final completion, what is the last item on the list of...

Accounting
Q

At Hodgson Corporation, direct materials are added at the beginning of the process and conversions...

Accounting
Q

Whitman Corporation, a merchandising company, reported sales of 7,400 units for May at a selling...

Accounting
Q

Choi Company manufactures two skin care lotions, Smooth Skin and Silken Skin, from a joint...

Accounting
Q

Waterway Corporation issues 3600,10 -year, 10%,$1000 bonds dated January 1, 2021, at 97 . The...

Accounting
Q

Under the periodic inventory system, the Cost of Merchandise Sold is equal to the beginning...

Accounting