The number of accidents the company will have to pay out for is 1,750. If the payout for each claim (after deductibles) is $8,000, the company’s total payouts will amount to $14,000,000. If the company wants to keep a profit margin of 8%, the premium it must charge is $604.8. The company can set aside a maximum amount of $1,120,000 for this year’s investments.
1.) 25,000 policyholders x 7% accident rate = 1,750 2.) 8,000 payout x 1,750 number of accidents = 14,000,000 3.) 14,000,000 expense x (1 + 8% profit margin) = 15,120,000 / 25,000 policy holders = 604.8 4.) 8,000 x 8% profit margin = 640 (which is higher than the premium) x 1,750 numer of accidents = 1,120,000 (I'm not so sure with this one tho)
