# 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

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 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(57377)   (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.