Question

There is a

0.9988

probability that a randomly selected

27​-year-old

male lives through the year. A life insurance company charges

​$170

for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out

​$120,000

as a death benefit. Complete parts​ (a) through​ (c) below.

a. From the perspective of the

2727​-year-old

​male, what are the monetary values corresponding to the two events of surviving the year and not​ surviving?The value corresponding to surviving the year is

​

The value corresponding to not surviving the year is

​(Type integers or decimals. Do not​ round.)

b. If the

2727​-year-old

male purchases the​ policy, what is his expected​ value?The expected value is

​(Round to the nearest cent as​ needed.)

c. Can the insurance company expect to make a profit from many such​ policies? Why?

Answer 1

a)

value corresponding to surviving=

-170

value corresponding to not surviving=

119830

b)

expected value =-170*0.9988+119830*0.0012=

-26.00

c)

Yes, expected value per insurance policy Is 26, therefore insurance company is expected to make a profit.