money can the insurance company expect to make with each policy sold .
<u>Step-by-step explanation:</u>
Here we have , A flood insurance company sells policies for $700 per year. If a customer's house is flooded, they are given $250,000 for repairs. The insurance company has calculated the chances that a house is flooded to be 1/12,500 over the year. We need to find , How much money can the insurance company expect to make with each policy sold . Let's find out:
Probability for flooding is 1/12,500 i.e. out of 12,500 people only 1 house is flooded , Amount of money collected by 12,500 people is :
⇒ ![12500(700)](https://tex.z-dn.net/?f=12500%28700%29)
⇒ ![\$8,750,000](https://tex.z-dn.net/?f=%5C%248%2C750%2C000)
But Company will give $250,000 for repairs . So , Amount of money :
⇒ ![8,750,000-2,50,000](https://tex.z-dn.net/?f=8%2C750%2C000-2%2C50%2C000)
⇒ ![\$8,500,000](https://tex.z-dn.net/?f=%5C%248%2C500%2C000)
Now , this money is from 12,500 people , so from every person they had:
⇒![\frac{8,500,000}{12500}](https://tex.z-dn.net/?f=%5Cfrac%7B8%2C500%2C000%7D%7B12500%7D)
⇒![\$680](https://tex.z-dn.net/?f=%5C%24680)
Therefore ,
money can the insurance company expect to make with each policy sold .