State Farm Insurance provides automobile insurance to n=1,000,000 customers
who belong to a so-called "high risk" category as they are more accident-prone.
Payouts are made when accidents occur in accordance with the amount of the
damages incurred. These payouts can be grouped into four categories based on
damage intensity:
Probability/ Accident Accident
Accident Events Payout Relative Frequency Payout Frequency
Xi P(Xi)
No Accident $0 0.92 = 92% _______ ________
Minor Accidents $3,000 0.05 = 5% _______ ________
Major Accidents $12,500 0.02 = 2% _______ ________
Car is "Totaled" $30,000 0.01 = 1% _______ ________
[Q#2] If the insurance company receives premiums and copayments that average
F = $1,000 per insured driver, what is its expected operating profit
per customer?
(a) $400 (b) $300 (c) $200 (d) $100 (e) $0