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A sailor wishes to insure his sailboat for $200,000. The insurance company estimates that a total loss may occur with probability 0.002, a 50% loss
A sailor wishes to insure his sailboat for $200,000. The insurance company estimates that a total loss may occur with probability 0.002, a 50% loss with probability 0.01, and a 25% loss with probability 0.1 and otherwise the loss is 0. If there is a $5000 deductible, what premium should be charged if the insurance company wants a profit of $1000.
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