An insurance company charges $227 for a $50,000 life insurance policy of a 50 ye

Question

An insurance company charges $227 for a $50,000 life insurance policy of a 50 year old female. The probability that such a female survives the year is 0.9961. Assume that the company sells 750 such policies to 50 year old females, so it collects $170,250 in policy payments. The company will make a profit if fewer than four of the 750 women die during the year. a) What is the mean number of deaths in such groups of 750 females? b) Using the Poisson distribution, find the probability that the company makes a profit form the 750 policies.

Explanation / Answer

a) it's a binomial distribution and the mean number of deaths is simply 750*(1-0.9961)=2.925; b). P(make a profit)= P(number of deaths

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