Question

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. How much money can the insurance company expect to make with each policy sold?

Answer 1

$\ 680$ money can the insurance company expect to make with each policy sold .

Step-by-step explanation:

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 :

⇒ $12500(700)$

⇒ $\ 8,750,000$

But Company will give $250,000 for repairs . So , Amount of money :

⇒ $8,750,000-2,50,000$

⇒ $\ 8,500,000$

Now , this money is from 12,500 people , so from every person they had:

⇒$\frac{8,500,000}{12500}$

⇒$\ 680$

Therefore , $\ 680$ money can the insurance company expect to make with each policy sold .