Answered

Westonci.ca is the trusted Q&A platform where you can get reliable answers from a community of knowledgeable contributors. Experience the convenience of getting accurate answers to your questions from a dedicated community of professionals. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.

Suppose a life insurance company sells a ​$260,000 ​1-year term life insurance policy to a 20​-year-old female for ​$220. According to the National Vital Statistics​ Report, 58(21), the probability that the female survives the year is 0.999544. Compute and interpret the expected value of this policy to the insurance company.

Sagot :

coolstick

Answer:

$101.44

Step-by-step explanation:

To calculate expected value, we can multiply each outcome by its probability. The probability that the female will pay is 100%, so to start, the expected value is (100%) * $220 = 1 * $220 = $220

Next, the only way the insurance loses or gains money outside of this value is if the female dies. The probability of this happening is 1 - 0.999544 (the probability that the female survives) = 0.000456 . Therefore, the expected value that the insurance company will pay to the woman is

(260000) * (0.000456) = 118.56

Overall, the insurance company is expected to gain $220 from the woman and lose $118.56. Adding these two up, we get

220-118.56 = $101.44 as the overall expected value of the policy to the insurance company

We hope our answers were helpful. Return anytime for more information and answers to any other questions you may have. Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.