An insurance company will insure a $ 50,000 diamond for its full value against theft at a

Question:

An insurance company will insure a $ 50,000 diamond for its full value against theft at a premium of $ 400 per year. Suppose that the probability that the diamond will be stolen is .005, and let x denote the insurance company’s profit.

a. Set up the probability distribution of the random variable x.

b. Calculate the insurance company’s expected profit.

c. Find the premium that the insurance company should charge if it wants its expected profit to be $ 1,000.

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...