Chapter 11: Problem 11
Use the formula for \({ }_{n} C_{r}\) to evaluate each expression. \({ }_{8} C_{1}\)
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Chapter 11: Problem 11
Use the formula for \({ }_{n} C_{r}\) to evaluate each expression. \({ }_{8} C_{1}\)
These are the key concepts you need to understand to accurately answer the question.
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The tables in Exercises 3-4 show claims and their probabilities for an insurance company. a. Calculate the expected value and describe what this means in practical terms. b. How much should the company charge as an average premium so that it breaks even on its claim costs? c. How much should the company charge to make a profit of \(\$ 50\) per policy? PROBABILITIES FOR MEDICAL INSURANCE CLAIMS $$ \begin{array}{|c|c|} \hline \begin{array}{c} \text { Amount of Claim (to the } \\ \text { nearest } \$ 20,000) \end{array} & \text { Probability } \\ \hline \$ 0 & 0.70 \\ \hline \$ 20,000 & 0.20 \\ \hline \$ 40,000 & 0.06 \\ \hline \$ 60,000 & 0.02 \\ \hline \$ 80,000 & 0.01 \\ \hline \$ 100,000 & 0.01 \\ \hline \end{array} $$
Explain how to find and probabilities with independent events. Give an example.
Involve computing expected values in games of chance. A game is played using one die. If the die is rolled and shows 1 , the player wins \(\$ 1\); if 2 , the player wins \(\$ 2\); if 3 , the player wins \(\$ 3\). If the die shows 4,5 , or 6 , the player wins nothing. If there is a charge of \(\$ 1.25\) to play the game, what is the game's expected value? What does this value mean?
It is estimated that there are 27 deaths for every 10 million people who use airplanes. A company that sells flight insurance provides \(\$ 100,000\) in case of death in a plane crash. A policy can be purchased for \(\$ 1\). Calculate the expected value and thereby determine how much the insurance company can make over the long run for each policy that it sells.
In a product liability case, a company can settle out of court for a loss of \(\$ 350,000\), or go to trial, losing \(\$ 700,000\) if found guilty and nothing if found not guilty. Lawyers for the company estimate the probability of a not-guilty verdict to be \(0.8\). a. Find the expected value of the amount the company can lose by taking the case to court. b. Should the company settle out of court?
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