Answer:
$900
Step-by-step explanation:
The given parameters are;
The amount Ted pays per year for insurance on his home = $1,400
The value of the insurance policy = $5000
The chance that Ted will make a claim on the policy = 10%
The expected value is given as follows
Incidence Probability(p) Value(v) v × p
A claim is made 0.1 $5,000 - $1,400 = -$3,600 -$360
No claim 0.9 $1,400 $1260
Expected value is $1,260 - $360 = $900
The value the insurance company can be expected to make on average on the policy is $900
