Suppose a life insurance company sells a $270,000 one-year term life insurance p

Question

Suppose a life insurance company sells a $270,000 one-year term life insurance policy to a 19-year-old female for $280. The probability that the female survives the year is 0.999511. 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 following interpretation of the expected value is correct? O A. The insurance company expects to make an average profit of $13.45 on every 19-year-old female it insures for 1 month. O B. The insurance company expects to make an average profit of $25.44 on every 19-year-old female it insures for 1 month. O C. The insurance company expects to make an average profit of $147.97 on every 19-year-old female it insures for 1 year. O D. The insurance company expects to make an average profit of $279.86 on every 19-year-old female it insures for 1 year.

Explanation / Answer

solution=

P[female DOESN'T survive] = 1-0.999511 = 0.000489

E[x] = 280 - 270000*0.000489 = $147.97

option(c)

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