An automotive insurance company has 25,000 policyholders. The accident rate is 0.07. The number of accidents the company will have to pay out for is (1)____.
25,000*.07
1750
Answer: C. 1750
If the payout for each claim (after deductibles) is $8,000, the company’s total payouts will amount to $ (2)_____.
8000*1750
Answer: 14,000,000
Not included in the choices
If the company wants to keep a profit margin of 8%, the premium it must charge is $(3)_____.
Answer: D. 604.8
Let X=premium
25,000(X)-14,000,000=net profit
(25,000X-14,000,000)/25,000X=.08
X=608.7
Nearest answer is D. 604.8
The company can set aside a maximum amount of $(4)_____ for this year’s investments.
<span>Answer: D. 1,120,000
25,000*604.8-14,000,000</span>
15120000-14,000,000
1,120,000<span>
</span>
