Answer:
A) - Value that corresponds to surviving the year would be: $-197
- Value Corresponding to not surviving = $98803
B) $-88.1
C) Yes, because the insurance company expects to make an average profit of $88.1 on every 29 year-old male that it insures for 1 year.
Step-by-step explanation:
A) We are told that the life insurance company charges $197 for insuring that the male will live through the year.
Thus, the value that corresponds to surviving the year would be: $-197 since amount that's paid out is $-197
We are told that the policy pays out $100,000 as a death benefit.
Therefore, the value that corresponds to not surviving the year is:
$100000 - 197 = $98803
B) From complement rule in probability;
P(not surviving) = 1 - P(surviving) = 1 - 0.9989 = 0.0011
Expected value would be;
μ = Σx•P(x) = (98803 × 0.0011) + (-197 × 0.9989) = $-88.1
C) Yes, because the insurance company expects to make an average profit of $88.1 on every 29 year-old male that it insures for 1 year
