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Random Variables, Expectation & Variance · Question 37 of 68

What does the insurer expect to pay out on one policy?

Question 37

EasyOriginal question

An insurer sells a one-year policy for a premium of ₹2,000. If the holder has an accident in the year, which happens with probability 0.005, the insurer pays out ₹1,00,000.

What does the insurer expect to pay out on one policy?

Options for question 37

Show the answer and explanation
CorrectNot quiteAnswer A

Correct answer: A

Explanation

  1. Expected payout =0.005×1,00,000= 0.005 \times 1{,}00{,}000.

  2. ₹500.

Worth noting

₹5,000 reads 0.005 as 0.05.

Concept
Expected payout
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