document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1132897>Question 1132897</A>: <I><SPAN STYLE=\"word-break: break-all;\"> The probability that an 80-year-old male in the U.S. will die within one year is approximately 0.069941. If an insurance company sells a one-year, $11,000 life insurance policy to such a person for $482, what is the company's expectation? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #750048 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=750048\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> the probability that the person will die in 1 year is .069941.<BR>\n" );
document.write( "the price of the policy is 482 dollars.<BR>\n" );
document.write( "if the person dies within the year, the insurance company is out 11,000.\r<BR>\n" );
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document.write( "the expected value to the insurance company is 482 - .069941 * 11000 = -287.351.\r<BR>\n" );
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document.write( "one way to look at this is to assume they sell a certain number of such policies to 80 years old males.\r<BR>\n" );
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document.write( "let's say they sell 1,000,000 of them.<BR>\n" );
document.write( ".069941 * 1,000,000 = 69,941 will die within a year of when they purchased the policy if the probability holds.<BR>\n" );
document.write( "the company makes 1,000,000 * 482 = 482,000,000 dollars from them.<BR>\n" );
document.write( "the company loses 69,941 * 11,000 = 769,351,000 dollars on the ones who have died within the year.<BR>\n" );
document.write( "the net loss to the company is 769,351,000 - 482,000,000 = 287,351,000 dollars.<BR>\n" );
document.write( "divide that by 1,000,000 and it comes out to be an average loss of 287.351 dollars for each policy sold.\r<BR>\n" );
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document.write( "that doesn't sound like a good deal for the company.<BR>\n" );
document.write( "it looks like they charged too little.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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