Question

In: Statistics and Probability

Sam is applying for a single year life insurance policy worth $60,900.00. If the actuarial tables...

Sam is applying for a single year life insurance policy worth $60,900.00. If the actuarial tables determine that she will survive the next year with probability 0.996 , what is her expected value for the life insurance policy if the premium is $331.00 ?

--- Answer in monetary value$ must have exactly two decimal places

Solutions

Expert Solution

policy worth after death = $60,900

Policy premium for 1 year = $331

P(survival in 1 year) = 0.996

Thus, P(death in 1 year) = 1 - 0.996 = 0.004

Now, Sam's expected value for the life insurance policy

= policy worth after death *P(death in 1 year) - policy premium for 1 year*P(survival in 1 year)

= 60900*0.004 - 331*0.996

= 60900*0.004 - 331*0.996

= -86.08

Thus, answer is - $86.08

orchestra answered 2 years ago
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