SOLUTION: An insurance company is going to sell 1 year life insurance policies with a face value of $40,000 to 25 year old men for $5000. Their mortality tables show that such men will live
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Question 996544: An insurance company is going to sell 1 year life insurance policies with a face value of $40,000 to 25 year old men for $5000. Their mortality tables show that such men will live for 1 year with probability 0.90. Find the company's expected earnings per policy. Answer by Boreal(15235) (Show Source):
You can put this solution on YOUR website! Expected value
+: 5000(0.90)=4500
-: 40000(0.10)=4000
The expected value is $500 per policy. Expected values are often never achievable (They can't ever get a return ending in $500), but are simply comparing the probabilities. This is a favorable outcome for the insurance company given the data here.
