Question

There is a

0.99890.9989

probability that a randomly selected

2929​-year-old

male lives through the year. A life insurance company charges

​$189189

for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out

​$110 comma 000110,000

as a death benefit. Complete parts​ (a) through​ (c) below.

a. From the perspective of the 29​-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 ....?????

b. If the 29-year-old male purchases the​ policy, what is his expected​ value? The expected value is ​.......?

c. Can the insurance company expect to make a profit from many such​ policies? Yes/no because the insurance company expects to make an average profit of ​......????? on every 29 dash year dash old 29-year-old male it insures for 1 year.

Answer 1

a)

if he lives, he losses the policy benefit = - $189

If he dies, his estate gains policy benefit = 110,000 - 189 = $109811

b)

If the 29-year-old male purchases the​ policy

X -189   109811

P(x) 0.9989 0.0011

X * P(x)  -188.79 120.79

Expected value = Σ X * P(x) = -$68

c)

Yes because the insurance company expects to make an average profit of $68 per policy