History Bookmarks People Window Help 42% . , Sun 10:22 PM Take a Test Mahbub Abd

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History Bookmarks People Window Help 42% . , Sun 10:22 PM Take a Test Mahbub Abdulkadr Secure https://www.mathal.com/St udent/PlayerTest.aspx?testld-1668461 Math 1070 Fall 2017 Mahbub Abdlladr 1a29/17 1022 P, Test: Test-Part 3: Probability and Probability Distributions Time Remaining 5of8complete) 1 This Question: 1 pt This Test: 8 pts possibl Suppose a lfe insurance company sells a $300,000 one-year term lite insurance policy to a 25-year-old female for $370. The probability that the femaile survives the year is 0.999467. Compute and interpret the expected value of this policy to the insurance company The expected values Round to two decimal places as needed.) Which of the following interpretation of the expected value is cormect? O A. The insurance company expects to make an average profit of $369 80 an every 25-year-old termale i insures for 1 year O B. The insurance company expects to make an average proft ef $210.10 on every 25-year -old female it irsures for 1 year O C. The insurance company expects to make an average proft of $19.10 on every 25-year-old female it insures for 1 month lD. The insurance company expects to make an average pro tof533 62 on every 25-year-old female nnsures Click to select your answerls) d feedback Privacy Tems e99

Explanation / Answer

The expected value to the insurance company here is computed as:

= Probability that the insurer survives * Insurance Premium + Probability that the person dies * ( Insurance Premium - Claim amount )

= 0.999467*370 - (1 - 0.999467 )*(300,000 - 370 )

= 369.80279 - 159.70279

= 210.10

Therefore $ 210.10 is the expected value here.

Also B is clearly the correct interpretation here ( only that contains the correct value here. )

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