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27 October, 00:52

A 37-year old individual purchases a life insurance policy of $95,000 for an annual payment of $250. based on a insurance report, the probability that an individual is in a life threatening accident this year and survives is 0.999063. find the expected value of the policy for the insurance compan

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  1. 27 October, 01:50
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    Answer:Expected value = - 94661.45

    Explanation:

    The Policy pay out is $95000, if a client is in life threatening accident insurance company will loose $95000, if the client is not in a life threatening accident the insurance company will gain $250

    Probability (Client is in a threatening accident) = 0.999063

    Probability (not in a life threatening accident) = 1 - 0.999063 = 0000937

    Insurance Premium = $250

    Insurance Payout = $95000

    expected value = 0.999063 x ( - (95000 - 250)) + 0.000937 x (250)

    expected value = 0.999063 x (-94750) + 0.000937 x (250)

    expected value = - 94661.21925 + 0.23425 = - 94661.44675

    expected value = - 94661.45
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