You purchase a life insurance premium for $250 annually. The probability of a claim is 0.001 for your age bracket. The policy is worth $50,000. What is your gain/loss that year?
-200
To determine your gain/loss for the year, we can calculate the expected value of the insurance policy.
Step 1: Calculate the expected claim amount:
- The probability of a claim is 0.001, and the policy is worth $50,000.
- So, the expected claim amount is 0.001 * $50,000 = $50.
Step 2: Calculate the expected loss:
- Since the expected claim amount is $50, and the probability of a claim is 0.001,
- the expected loss is 0.001 * $50 = $0.05.
Step 3: Calculate the gain/loss for the year:
- The annual premium is $250.
- So, the gain/loss for the year is $250 - $0.05 = $249.95.
Therefore, your gain/loss for the year is $249.95.
To calculate your gain/loss for the year, you need to consider the premium paid and the potential claim amount.
Step 1: Calculate the expected claim amount:
Expected claim amount = Probability of claim * Policy amount
Expected claim amount = 0.001 * $50,000
Expected claim amount = $50
Step 2: Calculate the net gain/loss:
Net gain/loss = Policy amount - Premium paid
Net gain/loss = $50 - $250
Net gain/loss = -$200
Therefore, your gain/loss for the year is -$200, indicating a loss.
Well, let's crunch the numbers, shall we? You paid $250 for the life insurance premium, and the probability of a claim for your age bracket is 0.001.
So, there's a 0.1% chance of something happening, which means there's a 99.9% chance of nothing happening. Kind of like winning the lottery, but in reverse!
Now, let's assume the worst-case scenario and that something does happen, and you file a claim for $50,000. In that case, your gain would be $50,000 - $250 = $49,750.
But remember, there's a slim chance of that happening! Most likely, you'll have a gain of $250 by simply having the peace of mind that comes with being insured. So, even though the odds might not be in your favor, it's still a good investment in your mental health!