9. Suppose a life insurance company sells a $220,000 one-year term life insuranc

Question

9. Suppose a life insurance company sells a $220,000 one-year term life insurance policy to a 20-year-old female for $210. The probability that the female survives the year is 0.999504. Compute and interpret the expected value of this policy to the insurance company. The expected value is S Round to two decimal places as needed.) Which of the following interpretation of the expected value is correct? O A. Tho insurance company expects to make an average proft of $19.08 on every 20-year-old female it insures for 1 month The insurance company expects to make an average profit of $209.90 on every 20-year-old female it insures for 1 year. O B. O C. The insurance company expects to make an average proit of $100.88 on every 20-year-old female it insures for 1 year. ? D. The insurance company expects to make an average profit of $9.17 on every 20-year-old female it nsures for 1 month

Explanation / Answer

expected value of the policy o the insuarance company=premium-expected payout

=210-220000*(1-0.999504)=100.88

option C is correct.

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