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In: Statistics and Probability

Suppose a life insurance company sells a $200,000 ​one-year term life insurance policy to a 23-year-old...

Suppose a life insurance company sells a $200,000 ​one-year term life insurance policy to a

23-year-old female for ​$190. The probability that the female survives the year is

0.999594. Compute and interpret the expected value of this policy to the insurance company.

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Expert Solution

Suppose a life insurance company sells a $200,000 ​one-year term life insurance policy to a

23-year-old female for ​$190. The probability that the female survives the year is

0.999594. Compute and interpret the expected value of this policy to the insurance company.

200,000-190 =199810

Expected value of the person = 0.999594*(-190)+(1-0.999594)*199810

= -108.80

expected value of this policy to the insurance company = $108.80

orchestra answered 2 years ago
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