Question

Suppose a life insurance company sells a $150,000 one-year term life insurance policy to a 19-year-old female for $220. The probability that the female survives the year is 0.999554, Compute and interpret the expected value of this policy to the insurance company The expected value is $ . (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 $153.10 on every 19-year-old female it insures for 1 year. OB. The insurance company expects to make an average profit of $13.92 on every 19-year-old female it insures for 1 month. O C. The insurance company expects to make an average profit of $19.99 on every 19-year-old female it insures for 1 month. OD. The insurance company expects to make an average profit of $219.90 on every 19-year-old female it insures for 1 year

Answer 1

1) expected value of the policy =220-150000*(1-0.999554) =153.1

option A is correct

2)for requirement of discrete probability distribution: option C and D are correct

3) a)

x	P(x)
4	0.2297
5	0.1486
6	0.2568
7	0.3649

b) option D is correct for plot

c)mean =5.7568

d) std deviation =1.2

4)

a)option C

b)option C