A 28-year-old man pays $125 for a one-year life insurance policy with coverage of $140,000.

A 28-year-old man pays $125 for a one-year life insurance policy with coverage of $140,000. If the probability that he will live through the year is 0.9994, to the nearest dollar, what is the man’s expected value for the insurance policy?

	a)$139,916
	b)−$41
	c)$84
	d)−$124

Solutions

Expert Solution

-$125 because he paid that amount .

Possible profit = 140000 - 125 = $139875

Probability of living = 0.9994

Probability of non living = 1 - 0.9994 = 0.0006

The expected value is = (-125) * 0.9994 + 139875 * 0.0006 = -41

The man’s expected value for the insurance policy is $-41 .

Option b)

orchestra answered 1 year ago

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