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March 2nd, 2014, 02:46 PM   #1
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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 ??
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March 2nd, 2014, 05:13 PM   #2
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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.
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March 2nd, 2014, 05:16 PM   #3
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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.
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March 4th, 2014, 08:03 AM   #4
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Re: Expected value with constant c

So the part of the question asking the expected value that the insurance company must pay is 1?
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March 5th, 2014, 06:16 PM   #5
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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?

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March 6th, 2014, 12:20 AM   #6
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Re: Expected value with constant c

Or is this the amount times one unit?
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