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dmatador

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In summary, the insurance company should charge $965 per policy ($1000 payout + $15 administrative fees - $50 profit) in order to make a profit of $50 per policy. The occurrence of A happening to 2 out of every 100 owners of the policy will result in an expected payout of $20 per policy.

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dmatador

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HallsofIvy

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The expected value is a measure of the average outcome of a random variable over a large number of trials. It is calculated by multiplying each possible outcome by its probability and summing them together.

The expected value is used to help make decisions in situations where there is uncertainty. It can help determine the most likely outcome and guide decision-making based on that information.

Yes, the expected value can be negative. This means that the outcome of a random variable is more likely to result in a loss or negative value.

The expected value is affected by the probabilities assigned to each possible outcome and the potential gains or losses associated with those outcomes.

The expected value is a theoretical value that represents the average outcome over a large number of trials. The actual outcome may differ from the expected value in any single trial, but over many trials, the actual outcome should become closer to the expected value.

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