Question

There is a 0.9983 probability that a randomly selected 28​-year-old male lives through the year. A life insurance company charges $191 for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out ​90,000 as a death benefit. Complete parts​ (a) through​ (c) below.

a. From the perspective of the 28​-year-old ​male, what are the monetary values corresponding to the two events of surviving the year and not​ surviving?

The value corresponding to surviving the year is ​$ _____?

The value corresponding to not surviving the year is $_____?

(Type integers or decimals. Do not​ round.)

If the 28​-year-old male purchases the​ policy, what is his expected​ value?

The expected value is ​$______?

​(Round to the nearest cent as​ needed.)

Can the insurance company expect to make a profit from many such​ policies? Why?

(yes or no ) ______?because the insurance company expects to make an average profit of $____? on every 28 year old male it insures for 1 year

​(Round to the nearest cent as​ needed.)

Answer 1

(A) given that probability of surviving this year is 0.9983

value corresponding to surviving the year = -$191

value corresponding to not surviving the year = $90,000-$191 = $89,809

and probability of not suviving = 1- 0.9983 = 0.0017

this gives us

Expected value = 0.9983*(-$191) +0.0017*($89809) =

= -190.6753 + 152.6753

= -$38.00

Yes, car company will make $38 on an average on each policy

YES because the insurance company expects to make an average profit of $ 38.00 on every 28 year old male it insures for 1 year

$190.6753

0.0017*(90000-191) =