Answer:
$600
Step-by-step explanation:
Let the random variable denote the damage in $ incurred in a certain type of accident during a given year. The probability distribution of
is given by
A company offers a $500 deductible policy and it wishes its expected profit to be $100. The premium function is given by
For , we have
For ,
For ,
For ,
Therefore, the probability distribution of is given by
To determine the premium amount that the company should charge, we need to calculate the expected value of
Therefore,
which means the $600 is the amount the should be charged.