Monday, August 27, 2007

Insurance Rates

An insurance company has three types of customers; high risk, medium risk and low risk. Twenty percent are high risk and 30% are medium risk. The probability that a customer has had at least one accident in the current year is .25 for high risk, .16 for medium risk and .10 for low risk.

What's the likelihood that a customer chosen at random has had at least one accident in the the current year?

1. I came up with 14.8%. I took the weighted averages of the probabilities based on percentage of clientelle in that category.

High: 20% X .20= .05
Med: 30% X .16= .048
Low: 50% X .10= .05

The sum of these probabilities is .148, or 14.8%.

2. Anon has the right idea, but he has a Typo in his solution:

High: 20%X .25 = .05

Otherwise, good job.

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