Question

Suppose a life insurance company sells a ​$270 comma 000 ​one-year term life insurance policy to a 19​-year-old female for ​$270. The probability that the female survives the year is 0.999519. Compute and interpret the expected value of this policy to the insurance company.

Answer 1

Answer:

the expected value of policy to insurance company is $144.44

Step-by-step explanation:

given data

sells = ​$270,000

life insurance policy = $270

probability = 0.999519

to find out

Compute and interpret the expected value of this policy to the insurance company

solution

we know here that probability that female wont survives year is = 1 - 0.999535

probability that female wont survives year = 0.000465

and

if female die company will lose 270000 - 270  = $269730

so

compute the expected value of policy to insurance company is =

= 270 × 0.999519 - $269730 × 0.000465

= 144.44

so the expected value of policy to insurance company is $144.44