the probability that an 80 year old male in the united states will die within one year is approximately 0.069941 if an insurance company sells a one year $10,000 life insurance policy to such a person for $495 what is the company’s expectation
To calculate the insurance company's expectation, we need to multiply the probability of death by the policy payout and subtract the policy cost.
Probability of death: 0.069941
Policy payout: $10,000
Policy cost: $495
Expectation = (Probability of death * Policy payout) - Policy cost
Expectation = (0.069941 * $10,000) - $495
Expectation = $699.41 - $495
Expectation = $204.41
Therefore, the insurance company's expectation is $204.41.
To calculate the insurance company's expectation, we need to multiply the probability of the event occurring by the amount paid out in that event.
Given:
- Probability of an 80-year-old male dying within one year: 0.069941
- Amount paid out in the event of death (life insurance policy value): $10,000
To find the insurance company's expectation, we multiply the probability of death by the amount paid out:
Expectation = Probability of death * Amount paid out
Expectation = 0.069941 * $10,000
Calculating the expectation:
Expectation = $699.41
Therefore, the insurance company's expectation is approximately $699.41.