2. (a) An insurance company believes that people can be divided into two classes: Class I Those that are accident prone

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2 A An Insurance Company Believes That People Can Be Divided Into Two Classes Class I Those That Are Accident Prone 1 (38.97 KiB) Viewed 20 times

2. (a) An insurance company believes that people can be divided into two classes: Class I Those that are accident prone and Class II - Those that are not accident prone The statistics show that an accident prone person will have an accident some time in the next year with probability 0.4, whereas this probability decreases to 0.2 for a non- accident prone person. Assuming that, 30% of the population is accident prone, what is the probability that a new policy holder will have an accident within a year of purchasing a policy. (9 marks) (b) Suppose a new policy holder has an accident within a year of purchasing a policy. What is the probability that he/she is accident prone? (c) Define the term Bayes' Theorem in your own words. (6 marks) (5 marks)