Insurance Calculation

prohornblower · #1 07-26-2007, 03:33 PM

If I wanted to offer a friend insurance for a $102 test in which I estimate he has only about a 40% chance of passing, how do I calculate the rate?

Say I want to add a flat $10 fee for profit. I've come up with a couple numbers, one was like $73, and the other $19...so there is a large disparity in my calcs.

Thanks!

Silent A · #2 07-26-2007, 03:44 PM

I assume he gets the $102 back from you if he fails?

If so, he has a 60% chance of failing so you should charge him:

($102)(0.6) + $10 = $71.20

Silent A · #3 07-26-2007, 03:48 PM

Of course, if the idea is that he'll break even if he fails (including the insurance costs) then the fee should be:

x = (0.6)(102+x) + 10
x = 71.2/0.4
x = $178

and you give him $280 if he fails ($102 for the test and $178 for the insurance).

Edit: did it OK after all.

prohornblower · #4 07-26-2007, 04:19 PM

Yeah, I came up with that $71.20 number as well the first time.

Basically he signs up for the exam ($102) and sends me $71.20, and if he fails the exam and retakes, then I'll buy his retate ($102), but if he passes, I pocket the $71.20.

There's no way he'd go for this though, as his net worth is like $100K. lol. I just thought it would be fun to offer it to him (and know that I'm offering a good amount).

Is $10 fee on $102 test too much profit?

jogger08152 · #5 07-26-2007, 06:28 PM

[ QUOTE ]
Yeah, I came up with that $71.20 number as well the first time.

Basically he signs up for the exam ($102) and sends me $71.20, and if he fails the exam and retakes, then I'll buy his retate ($102), but if he passes, I pocket the $71.20.

There's no way he'd go for this though, as his net worth is like $100K. lol. I just thought it would be fun to offer it to him (and know that I'm offering a good amount).

Is $10 fee on $102 test too much profit?

[/ QUOTE ]
Yes.

Silent A · #6 07-26-2007, 06:35 PM

I'd say, "for a friend, yes". For me, it's hard to say otherwise.

BTW, am I the only one who sees "Porn Ho Blower" every time I see your 2+2 name?

Borodog · #7 07-27-2007, 09:32 AM

[ QUOTE ]
I'd say, "for a friend, yes". For me, it's hard to say otherwise.

BTW, am I the only one who sees "Porn Ho Blower" every time I see your 2+2 name?

[/ QUOTE ]

First time I saw it and for months after I thought it said, "Probonoblower".