An insurance company is considering offering fire insurance to customers in a ce

Question

An insurance company is considering offering fire insurance to customers in a certain state. After examining thousands of records of insurance claims in the area, they have come up with the following information:

First convert the table into a probability distribution by dividing each number in the "Claims" column by the total number of claims. Take probability calculations to 3 decimal places.

Let X be the expected payout. Find E(X) to two decimal places.

Payout Number of Claims $64,312 26 $27,932 526 0 2,964

Explanation / Answer

Consider the table:

Thus,

E(x) = Sum (xP(x)) = 4639.984 = 4639.98 [ANSWER]

x P(x) x P(x) 64312 0.007 450.184 27932 0.15 4189.8 0 0.843 0 Totals 4639.984

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