Suppose a ife insurance company sells a $280,000 one year torm life insurance po

Question

Suppose a ife insurance company sells a $280,000 one year torm life insurance policy to a 24.year-old female for $190 The probability that the female survives the year is 0 999488 Compute and interpret the expected value of this policy to the insurance company The expected value is S (Round to two decimal places as needed ) Which of the folowing interpretation of the expected value is correct? A. The insurance company expects to make an average prom os4 24 on every 24-year-old female it nsures or 1 month B. The n arce companyexpects to make an average pro t of S189 onevery 24-year-old femaletr sures or 1 year O C. The msurance company expects to make an average profit of $17 26 on every 24-year-old female it insures for 1 month D. The insurance company expects to make an average profit of S46 64 on every 24-year-old female insures for 1 year Click to select your answers)

Explanation / Answer

Here probability of survives is 0.999488

And probability of death is 1 - 0.999488 = 0.000512

X: Amount

Negative sing because of insurance company loss amount.

280000 - 190 = 279810

So the expected value is $ 46.64

Interpretation is

D) The insurance company expects to make an average profit of $46.64 on every 24-year-old female it insures for 1-year.

x p x*p 190 0.999488 189.9027 -279810 0.000512 -143.263 Total 46.64

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