Question

s t insurance company charges 515 fo ring that the male will live through the year if the male does not survive the year, the There is a policy pays randomly selected 32 year old maleves through the year. A benet Complete parts(a) through (c) below a some w hat many pong to the evening the year and not surviving The vale componding to suring the years The value corresponding to surviving the years pe wegenser round) Round the Can the contas needed) ance company expect to make a profit from many such policies? Why? overy 2-year-old matures for year because therance company aspects to make an average Hound to the nearest contas ded)

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Answer 1

If the male is taking the policy then premium charge is $192. If he survies he receives nothing but lost $192. If dies, then claim received is $80000 but ultimately receives $79808 (80000 - 192 cause premium is paid irrespective the status)

Therefore the monetary (not joing any inflation or probability) values are

Surviving the year = $192

Not surviving the year = $79808

(b) The expected value is sum all the value with the probabilities

Status	Value	Probabilities	x * P(x)
Survived	-192	0.9987	-191.7504
Not survivied	79808	0.0013  (1 - 0.9987)	103.7504

Expected value = -191.7504 + 103.7504

Expected Value = -$88

(d) The above calcualtions are from point of view of policy holder. From the point of view of insurance policy, it will have to pay nothing on survival so it positive cashflow of premium amount to $192. On death it will have to pay $80000, but ultimate loss is -$79808.

Status	Value	Probabilities	x * P(x)
Survived	192	0.9987	191.7504
Not survivied	-79808	0.0013  (1 - 0.9987)	-103.7504

Expected Value = $88

Sicne the expected profit is positive value, the insurance company can expect to make a profit of $88 on an average

Yes

88