Question

There is a 0.9968 probability that a randomly selected 50 year old female lives through the year (based on data from the US department of Health and Human Services). A Fidelity life insurance company charges $226 for insuring that the female will live through the year. If she does not survive the year, the policy pays out $50,000 as a death benefit.

Answer 1

There is a 0.9968 probability that a randomly selected 50-year-old female lives through the year (based on data from the U.S. Department of Health and Human Services).

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A Fidelity life insurance company charges $226 for insuring that the female will live through the year. If she does not survive the year, the policy pays out $50,000 as a death benefit.

From the perspective of the 50-year-old female, what are the values corresponding to the two events of surviving the year and not surviving?

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Ans: -226 ; 50,000-226 = 49774

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If a 50-year-old female purchases the policy, what is her expected value?

 

WORK TRIED:

In the event she lives, the value is -$226. In the event she dies, the value is $49,774.

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E(x) = 0.9968*(-226) + 0.0032(49774) = -$66

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Cheers,

ROR