Question

lim is a 60 year old Anglo male in reasonably good health. He wants to take out a $50,000 term that is, straight death benefit) life insurance policy until he is 65. The policy will expire on his oth birthday. The probability of death in a given year is provided by the Vital Statistics Section of the Statistical Abstract of the United States (116th Edition) 60 death at this age 2012 Jim is applying to Big Rock Insurance Company for his term wrance policy. (a) What is the probability that im will die in his oth year? (Enter your answer to five decimal places) Using this probability and the $50,000 death benefit, what is the expected cost to Big Rock Insurance? (Round your answer to two decimal places) $ (b) Repeat part (a) for years 61, 62, 63, and 66. (Round your answers to two decimal places) Year Expected Cost $ $ $ 64 5 What would be the total expected cost to Big Rock Insurance over the years 60 through 647 (Round your answer to two decimal places.) $ (c) of Big Rock Insurance wants to make a profit of $700 above the expected total cost paid out for Jim's death, how much should charge for the policy? (Round your answer to two decimal places. $ (0) 1 Big Rock Insurance Company charges $5000 for the policy, how much profit does the company expect to make? (Round your answer to two decimal places) $

Answer 1

Soon (6) year 61 64 cas Probability that Jim will die in his Goth year 0.01057 (Using given table) Expected cost to Big Rock Insurance $1528.50 = $50000 x 0.01057 Probability Expected cast 0.01471 x Soooo $1735.50 0.01471 0.01732X 50000 = $1866.00] 62 0.01732 0.02017 x50000 =1068.50 63 0.02017 0.02230 0.02230x50000 $1115.00 Tofal expected cost = $(528.50+735.50 +856 +1oo8.50+115.00) = $ 4253.50 (c) If Big Rock Insurance wants to make profit of $700 above the expected total cost, charge for the pelicy = $4253.50 +700) = $4953.56 (d) If Big Rock Insurance Company charges $5000 for the policy profit $(5000 - 4253.50) $ 746.50 amount