Assume that a 25-year-old man has these probabilities of dying during the next f

Question

Assume that a 25-year-old man has these probabilities of dying during the next five years. Age at death 25 26 27 28 29 Probability 0.00035 0.00043 0.00052 0.00057 0.00060 (a) What is the probability that the man does not die in the next five years? (Enter your answer to five decimal places.) (b) An online insurance site offers a term insurance policy that will pay $100,000 if a 25-year-old man dies within the next 5 years. The cost is $170 per year. So the insurance company will take in $850 from this policy if the man does not die within five years. If he does die, the company must pay $100,000. Its loss depends on how many premiums were paid, as follows Age at death 25 26 272829 Loss $99,830 $99,660 $99,490 $99,320 $99,150 What is the insurance company's mean cash intake from such polices? (Round your answer to two decimal places.)

Explanation / Answer

a) P(Man doesn't die in next 5 years)

= 1 - P(Die in next 5 years)

= 1 - [0.00035 + 0.00043 + 0.00052 + 0.00057 + 0.00060]

= 0.99753

b) Insurance company's mean intake

= 850*0.99753 - (0.00035*99830 + 0.00043*99660 + 0.00052*99490 + 0.00057*99320 + 0.00060*99150)

= 602.27

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.