SOLUTION: An insurance company charges $200 for a life insurance premium for people under the age of 18 that pays out $15,000. The probability that someone dies before their 18th birthday is
Algebra.Com
Question 138658: An insurance company charges $200 for a life insurance premium for people under the age of 18 that pays out $15,000. The probability that someone dies before their 18th birthday is 0.0025. What is the expected payout by the insurance company? How much of that profit/loss does the company make?
Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
An insurance company charges $200 for a life insurance premium for people under the age of 18 that pays out $15,000. The probability that someone dies before their 18th birthday is 0.0025. What is the expected payout by the insurance company? How much of that profit/loss does the company make?
-----------------
Let "gain" be the random variable.
Its values are +200 and -15000
Corresponding probabilities are 0.9975 and 0.0025
------------------------------------
E(x) = 200*0.9975 and -15000*0.0025
E(x) = $162
The company can expect to gain $162 during that particular year.
-----------------
Cheers,
Stan H.
RELATED QUESTIONS
A 40-year-old man in the U.S. has a 0.24% risk of dying during the next year . An... (answered by ikleyn)
A woman pays a premium of $260 per year for a $20,000 life insurance policy. The... (answered by ewatrrr)
A 40-year-old man in the U.S. has a 0.247% risk of dying during the next year . An... (answered by ikleyn)
A 40-year-old man in the U.S. has a 0.245% risk of dying during the next year. An... (answered by Boreal)
1. A woman pays a premium of $260 per year for a $20,000 life insurance policy. The... (answered by stanbon)
a car insurance company charges insurance premium in proportion to the car's value. for a (answered by ikleyn)
There is a 0.9986 probability that a randomly selected 30 year old male lives through the (answered by stanbon)
A 65 year old woman takes out a $100,000 term life insurance policy. The company charges (answered by stanbon)
A 31-year-old woman purchases a 200,000 term life insurance policy for an annual payment (answered by ikleyn)