Question

There is a 0.9989 probability that a randomly selected 32 year old male lives through the year. A life insurance company charges $153 for insuring that the male will live through the year. If the man does not survive the year, the policy pays out $90,000 as a death benefit?

Answer 1

Answer:

$53.83

Step-by-step explanation:

The question is "What is the expected value for the insurance company?"

The expected value is the sum of the product of each possibility and its probability.

Thus, we have:

The probability of living is 0.9989 and its value is 153

THe probability of dying is (1-0.9989=0.0011) and its value is -90,000

Now, the expected value is:

E(x) = (0.9989)(153) + (0.0011)(-90,000) = $53.83