Apotential customer for an $88,000 fire insurance policy possesses a home in an area that, according to experience, may sustain a total loss in a given year with probability of 0.001 and a 50% loss with probability 0.01. ignoring all other partial losses, what premium should the insurance company charge for a yearly policy in order to break even on all $88,000 policies in this area?

The answer is: In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.

Explanation:

In order to calculate what premium the insurance company should charge in order to break even, we must know how much money the company will have to pay during the year.

Fire insurance policy of $88,000

Possible losses             Probability      Money paid by company      

total loss                              0.001              $88,000

50% loss                              0.01                $44,000

The company will have to pay $88 ($88,000 x 0.001) for a total loss and $440 ($44,000 x 0.01) for a 50% loss, we add them up and get $528.

In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.

answer; the correct answer is (0.08);

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.