You are given the following information:

• Fixed underwriting expenses are negligible.
• Variable expenses are stable and equal 10% of premium.
• Projected pure premium, including LAE, for the forecast period equals $1,500.

If the indicated rate per exposure unit equals $2,000, determine the target profit percentage.

• 10%
• 15%
• 20%
• 25%
• 30%

According to the pure premium method, the indicated rate per exposure unit equals

[[math]] \overline{P_I} = \frac{\overline{L + E_L} + \overline{E_F}}{1 - V - Q_T} = \frac{1500}{0.9 - Q_T}. [[/math]]

Since the indicated rate per exposure unit equals $2,000, then the formula above implies that the target profit percentage must equal 15%.