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judocallin

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Jan 18, 2009
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Insurance. An insurance company insures a person's antique collection worth $20000 for an annual premium of $300. If the company figures that the probability of the collection being stolen is 0.002, what will be the company's expected profit?

My solution:

Expected profit = $300 – 0.002*20,000 =260

Our professor presented a different solution but came up with the same answer as mine. He multiplied 300 by 0.998 and subtracted the 0.002*(20,000-300)

can someone explain the process or am i wrong. Was it a coincidence
 
judocallin said:
Insurance. An insurance company insures a person's antique collection worth $20000 for an annual premium of $300. If the company figures that the probability of the collection being stolen is 0.002, what will be the company's expected profit?

My solution:

Expected profit = $300 – 0.002*20,000 =260

Our professor presented a different solution but came up with the same answer as mine. He multiplied 300 by 0.998 and subtracted the 0.002*(20,000-300)

can someone explain the process or am i wrong. Was it a coincidence

It was not a coincedence.

You are applying the same "logic" as your professor.
 
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