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Atrap and Bracken are two rival insurance companies. Atrap and Bracken have premiums of $150 and $100 and deductibles of $2,500 and $3,500 respectively. The average expense of surgery is $25,000. If after 5 years, 25 of the 1,000 people registered with Bracken have gone through surgery, where does Bracken stand in terms of gains or losses?

Respuesta :

Bracken has lost $37,500 over 5 years.

Answer:

Bracken has incurred a loss of $37,500

Step-by-step explanation:

People who have registered with Bracken insurance company pays premium of $100. 1,000 people in total have registered with Bracken. In 5 years Bracken would have earned an income of $500,000 [tex]\left ( $100\times1,000\times5)\right[/tex].

25 among the 1,000 registered have undergone surgery. Average surgery expense is $25,000. $3,500 is deductible.  So Bracken's total expense per client is $21,500 (25,000 - 3,500). For 25 patients, it will be $537,500 [tex]($21,500\times25)[/tex].

Since expenses of $537,500 is more than income of $500,000, Bracken incurs a loss of $37,500 (500,000 - 537,500) over 5 years.

Therefore, Bracken's loss over 5 years is $37,500

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