Answered

Westonci.ca connects you with experts who provide insightful answers to your questions. Join us today and start learning! Connect with a community of experts ready to help you find solutions to your questions quickly and accurately. Get detailed and accurate answers to your questions from a dedicated community of experts on our Q&A platform.

If the executives at Avicenna know that they will sell many of these policies, should they expect to make or lose money from offering them? How much?

If The Executives At Avicenna Know That They Will Sell Many Of These Policies Should They Expect To Make Or Lose Money From Offering Them How Much class=

Sagot :

In order to calculate the expected value of one policy, we can use the formula below:

[tex]E(x)=\sum x\cdot p(x)[/tex]

When the holder of the policy dies before 70 years old (probability of 3%), the company will earn $765 but will lose $27400. If the holder dies after 70 years old, the company will earn $765.

So the expected value is:

[tex]\begin{gathered} E(x)=0.03\cdot(765-27400)+0.97\cdot765\\ \\ E(x)=0.03\cdot(-26635)+742.05\\ \\ E(x)=-799.05+742.05\\ \\ E(x)=-57 \end{gathered}[/tex]

Since the expected value is negative, that means the company should expect to have a loss of $57 for each insurance policy sold.

Therefore the correct option is the second one, and the expected loss is $57 per policy.

Thank you for your visit. We're committed to providing you with the best information available. Return anytime for more. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.