Question 1138277: It is estimated that there are 22 deaths for every 10 million people who use airplanes. A company that sells flight insurance provides $100,000 in case of death in a plane crash. A policy can be purchased for $1. Calculate the expected value and thereby determine how much the insurance company can make over the long run for each policy that it sells.
The expected value is $
(Round to the nearest cent.)
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! the probability of someone dying from being in an airplane is 22 / 10 million.
if a person dies, that person's heirs will receive 100,000.
the cost of a policy is 1 dollar.
the expected value from each policy sold to the company that sells the insurance is 1 dollar minus 22 / 10 million * 100 thousand = .78.
in other words, if the company sold 10 million policies and the odds held, the company would take in 10 million dollars and have to shell out 22 * 100,000 = 2.2 million dollars.
it would have a gross profit of 10 million minus 2.2 million = 7.8 million.
divide that by 10 million policies sold, and the expected value to the company for each policy sold would be .78 dollars.
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