7. Suppose a life insurance company sells a $240,000 one year term life insuranc

Question

7. Suppose a life insurance company sells a $240,000 one year term life insurance policy to a 24 year old female for $210. The probability that the female survives the year is 0.999472. Compute and interpret the expected value of this policy to the insurance company.

The expected value is $__?__ (Round to two decimal places as needed.)

8. An investment counselor calls with a hot stock tip. He believes that if the economy remains strong, the investment will result in a profit of $40,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000. However, if the economy goes into recession, the investment will result in a loss of $40,000. You contact an economist who believes there is a 30% probability the economy will remain strong, a 60% probability the economy will grow at a moderate pace, and a 10% probability the economy will slip into recession. What is the expected profit from this investment?

The expected profit is __?___ (Type an integer or a decimal.)

9. In the game of roulette, a player can place a $9 bet on the number 7 and have a 1/38 probability of winning. If the metal ball lands on 7, the player gets to keep the $9 paid to play the game and the player is awarded an additional $315. Otherwise, the player is awarded nothing and the casino takes the player's $9. What is the expected value of the game to the player? If you played the game 1000 times, how much would you expect to lose?

The expected value is __?__ (Round to the nearest cent as needed.)

The player would expect to lose about __?___ (Round to the nearest cent as needed.)

Explanation / Answer

7:

Let X is a random variable shows the profit for the company. Here X can take values 210 or 210-240000 = -239790. So if women survive

P(X= 210) = 0.999472

and if she will not survive then

P(X = -239790) = 1- 0.999472 = 0.000528

So expected value of policy for company is

E(X) = 0.999472 * 210 + (-239790) * 0.000528 = $83.28

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

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