Sweetwater & Associates write weekend trip insurance at a very nominal charge. Records show that the probability that a motorist will have an accident during the weekend and file a claim is 0.0005. Suppose they wrote 400 policies for the coming weekend, what is the probability that exactly two claims will be filed?
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A. B. C. D. E.Explanation
This is a binomial probability. The probability of getting r successes out of n trials where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p) is given by: n!(p^r)[q^(n-r)]/r!(n-r)!. Here n = 400, r = 2,p = 0.0005 and q = 0.9995. Therefore we have 400!(0.0005^2)(0.9995^398)/2!398! =
0.0164.