Question

There is a 0.9985 probability that a randomly selected 32​-year-old male lives through the year. A life insurance company charges ​$193 for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out $110,000 as a death benefit. Complete parts​ (a) through​ (c) below.

a. From the perspective of the 32​-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.)

b. If the 32​-year-old male purchases the​ policy, what is his expected​ value?

The expected value is $__

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

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

YES/NO because the insurance company expects to make an average profit of $__ on every 32-year-old male it insures for 1 year.

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

Answer 1

Let A be the event that denotes a 32 year old male lives through the year

P(A)=0.9985

=1-0.9985

=0.0015

a) The value corresponding to surviving the year is $(0.9985*110000)= $109835

the value corresponding to not surviving the year ia $(0.0015*110000)= $165

b)The expected value is $(0.9985*193)= 192.7105

c) yes because the insurance company expect to make an average profit of $(193-165)=$28 on every 32 year old maleit insures for 1 year