Question

Out of 5000 policies for cell phones, a company received 585 claims. The average amount paid on the claims was $80. If the annual cost of the policy was $48, what was a customers expected value of the cell phone insurance policy?
-$9.36
$5.13
-$38.64
$9.36​

Answer 1

Answer:

the customer's expected value of the cellphone insurance policy is -$38.64. (Option C)

Step-by-step explanation:

Based on the data given, 585/5000 or 11.7% of the total number policies have claims. This means, 100% - 11.7% = 88.3% have not claimed their cellphone insurance.

• In the  chart, we are focusing on the customer's end because the question is asking for the customer's expected value↓

• In the chart, if the customer has no claims, then he losses his $48. However, if he has claims, he gains $32 since $80 - 48 = $32. Also, based on the data given by the company, 88.30% have no claims and only 11.7% of the customers have claims.
• To get the expected value, we will multiply -48 and 88.3% as well as 32 and 11.7%. 48 is negative because it indicates a loss.

Therefore, your Answer is -38.64