Question

There is a 0.9986 probability that a randomly selected 31 year old male lives through the year. A life insurance company charges $185 for insuring that the male will live through the year. If male does not survive the year, the policy pays $120,000 As a death benefit. Complete parts
a. From the perspective of the 31 year old male, what are the monetary value 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 31 year old male purchase the policy, what is his expected value?

the expected value is $

(round to the nearest cent as needed)

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

Answer 1

a)

value corresponding to surviving=

-185

value corresponding to not surviving=

119815

b)

expected value =-185*0.9986+119815*0.0014=

-17.00000

c)

Yes, expected value per insurance policy Is 17, therefore insurance company is expected to make a profit.