Question 730575: There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. A life insurance company charges $161 for insuring that the male lives through the year. If the male does not survive the year, the policy pays out $100,000 as a death benefit.
a. From the perspective of the insurance company what are the values corresponding to the two events of surviving the year and not surviving?
b. What is the expected value for the insurance company?
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. A life insurance company charges $161 for insuring that the male lives through the year. If the male does not survive the year, the policy pays out $100,000 as a death benefit.
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a. From the perspective of the insurance company what are the values corresponding to the two events of surviving the year and not surviving?
Random Number values: 161 and (-100,000+161)
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b. What is the expected value for the insurance company?
E(x) = 0.9986*161 + 0.0014*(-99839) = $21.00
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cheers,
Stan H.
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