10 Payoff Insurance Company charges a customer according to his or her accident history. A customer who...
Question:
10 Payoff Insurance Company charges a customer according to his or her accident history. A customer who has had no accident during the last two years is charged a
$100 annual premium. Any customer who has had an accident during each of the last two years is charged a $400 annual premium. A customer who has had an accident during only one of the last two years is charged an annual premium of $300. A customer who has had an accident during the last year has a 10% chance of having an accident during the current year. If a customer has not had an accident during the last year, there is only a 3% chance that he or she will have an accident during the current year. During a given year, what is the average premium paid by a Payoff customer? (Hint: In case of difficulty, try a four-state Markov chain.)
Step by Step Answer:
Operations Research Applications And Algorithms
ISBN: 9780534380588
4th Edition
Authors: Wayne L. Winston