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In: Statistics and Probability

The probability that a 22-year-old female in the U.S. will die within one year is approximately...

The probability that a 22-year-old female in the U.S. will die within one year is approximately 0.00044. If an insurance company sells a one-year, $25,000 life insurance policy to such a person for $155, what is the company's expectation? (Round your answer to the nearest dollar.)

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Expert Solution

The company gains $155 when the person doesn't die.

The company looses $25000 - $155 = $24845 when the person dies.

P(company gains $155) = 1 - 0.00044 = 0.99956

P(company looses $24845) = 0.00044

Company's expectation = 155 * 0.99956 - 24845 * 0.00044 = $144 (ans)

orchestra answered 2 years ago
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