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March 2nd, 2014, 02:46 PM  #1 
Senior Member Joined: Jan 2014 Posts: 196 Thanks: 3  Expected value with constant c
An insurance company sells an automobile policy with a deductible of one unit. Let X be the amount of the loss having the p.m.f. would this be set up as ? If so, what should this all be equal to in order to find the constant ?? Thanks! 
March 2nd, 2014, 05:13 PM  #2 
Math Team Joined: Sep 2007 Posts: 2,409 Thanks: 6  Re: Expected value with constant c
I presume that when you say "set up as" you mean that is the sum of the probabilities. Of course such a sum must be equal to 1. But when x= 0, there is no "c". The probability when x= 0 is just .9, not .9c. So the sum is . Solve that for c.

March 2nd, 2014, 05:16 PM  #3 
Math Team Joined: Sep 2007 Posts: 2,409 Thanks: 6  Re: Expected value with constant c
I presume that when you say "set up as" you mean that is the sum of the probabilities. Of course such a sum must be equal to 1. But when x= 0, there is no "c". The probability when x= 0 is just .9, not .9c. So the sum is . Solve that for c.

March 4th, 2014, 08:03 AM  #4 
Senior Member Joined: Jan 2014 Posts: 196 Thanks: 3  Re: Expected value with constant c
So the part of the question asking the expected value that the insurance company must pay is 1?

March 5th, 2014, 06:16 PM  #5 
Senior Member Joined: Jan 2014 Posts: 196 Thanks: 3  Re: Expected value with constant c
The last part states to determine and the expected value that the insurance company must pay. so for , what do I do w/ this constant to figure out what the insurance company actually pays? Thanks! 
March 6th, 2014, 12:20 AM  #6 
Senior Member Joined: Jan 2014 Posts: 196 Thanks: 3  Re: Expected value with constant c
Or is this the amount times one unit?


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