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22 May, 20:08

A 40-year-old man in the U. S. has a 0.246% risk of dying during the next year. An insurance company charges $250 per year for a life-insurance policy that pays a $100,000 death benefit. What is the expected value for the person buying the insurance

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  1. 22 May, 23:17
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    Expected value = 3.385

    Explanation:

    If an individual gets to benefit from an insurance policy, he will take insurance policy.

    Expected value = (Probability of an event * Pay off for dying) - [ (1-Probability of an event) * Pay off for living]

    Expected value = (0.246% * $100,000) - [ (1-0.246%) * $250]

    Expected value = ($246) - [0.99754 * $250]

    Expected value = ($246) - [249.385]

    Expected value = 3.385
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