Suppose a person is looking for a one-year life insurance policy. They decide on a $208147...

Suppose a person is looking for a one-year life insurance policy. They decide on a $208147 policy. This policy costs $268 per year. Suppose the probability the person dies in the year is 0.0004. Find the expected value of the policy for the insurance company. Give your answer as a decimal to at least two decimal places. These have to go into our TI-84 Plus calculator using the 1 varstats L1, L2 method...

Expert Solution

Ans:

Probability the person dies=0.0004

Probability the person does not die=1-0.0004

If person does not die,insurance company will get 268,but if person dies,then company will have to pay insurance amount of 208147 minus policy cost of 268

The expected value of the policy for the insurance company

=268*(1-0.0004)-(208147-268)*0.0004

=184.74

orchestra answered 2 years ago

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