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If a 30 year old male purchases the policy, what is the expected value the insurance...

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surfer3 | (Level 1) Valedictorian

Posted May 25, 2012 at 3:04 AM via web

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If a 30 year old male purchases the policy, what is the expected value the insurance company receives fom him.

There is a .9986 probability that a randomly selected 30 year old male lives through the year, A life insurance company charges $161 for insuring that the male will live through the year. If the male does not survive the year the policy pays out $100,000.

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted May 25, 2012 at 3:50 AM (Answer #1)

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There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. The life insurance company charges $161 for insuring the person for a year. If the person dies during the year the policy pays out $100,000.

The amount paid out by the insurance company is equal to (1 - 0.9986)*100000 + 0.9986*0 = $140

The amount received by the insurance company is $161.

The expected value of the amount received by the insurance company from a person buying the policy is $21.

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