Question 1193160: 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, $14,000 life insurance policy to such a person for $415, what is the company's expectation?
Answer by ikleyn(52879)   (Show Source):
You can put this solution on YOUR website! .
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, $14,000 life insurance policy to such a person for $415,
what is the company's expectation?
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By selling such life insurance, the company gets $415 from each customer.
The company pays 14000*0.069941 = 979.17 to each customer, in average.
The company expectation is
(415 - 14000*0.069941) = -564.17 dollars. ANSWER
Notice the negative sign before this number. It means that the company loses $564.17, in average, with each customer
(which is, definitely, bad business).
Solved.
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