Question 245933: A 28-year-old man pays $ 175 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9993, what is the expected value for the insurance policy?
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! A 28-year-old man pays $ 175 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9993, what is the expected value for the insurance policy?
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Let the random variable track the value to the customer.
Random number values: -$175, 140,000-175 = $139825
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Corresponding Probabilities: 0.9993 and 0.0.0007
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E(x) = (-175)(0.9993) + (139825)(0.0007) = -$77.00
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Cheers,
Stan H.
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