SOLUTION: A 28-year-old man pays $125 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9994, to the nearest dollar,

Algebra ->  Probability-and-statistics -> SOLUTION: A 28-year-old man pays $125 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9994, to the nearest dollar,       Log On


   

Question 1069132: A 28-year-old man pays $125 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9994, to the nearest dollar, what is the man’s expected value for the insurance policy?
A. $139,916
B. −$41
C. $84
D. −$124
Answer by Boreal(15235) About Me  (Show Source):
You can put this solution on YOUR website!
E(x)=0.9994*-125=-$124.925, minus because he paid for it.
add to that 140,000(.0006)=$84
His loss is -$40.925 or -$41. The insurance company's expected value is positive, which is why they sell it.
B.