3im is a 60-year-old Anglo male in reasonably good health. He wants to take out

Question

3im is a 60-year-old Anglo male in reasonably good health. He wants to take out a $50,000 term (that is, streight deoth benefie) life insurance poilicy unti he is 65. The policy will lexpire on his 65th birthedey. the probebuty of death in a given year is provided by the Vital Stetistics Section of the Stacistical Abstract of the United States (116th Edition) 3im is applying to Big Rock Insurance Company for his term insurance policy ) What is the probability that Jim will die in his 60th year? (Enter your answer to five decimal places) using this probabaty and the $50,000 death benen, what is the expected cost to ng Rock Insurance, ound your answer t° two decimal places.) (b) Repeat part (a) for years 61, 62, 63, and G4. (Round your answers to two decimal places Year Expected Cost 61 s 62 1 63 64 Rock Insurance over the years 60 trough64(Round your answer to two decimal What would be the total expected cost to Big Rock Insurance over the years 60 through 647 (Round your answer to two decimal places) should t arge for De ?0eaund your amwer to two paces) (c) t, Big Rock Insurance nants to make a pre/t of $700 above the expected total oost paid out fo' lin's death, ha m (e) Ir Big Rock Insurance Company charges $5000 for the policy, how much proft does the company expect to make? (Round your answer to two decimal places ) Need Holp?

Explanation / Answer

SINCE VALUES ARE NOT CLEARLY VISIBLE, SO THERE MAY BE CHANCES OF ERROR IN THE VALUES.

(a) P(60), means, e.g., the probability Jim will die in his 60th year;

so from the table P(60) = .01003,

and the expected cost is (.01003)(50000) = $501.5

(b) P(61) = .01396, Expected Cost is (.01396)(50000) = $698.

P(62) = .01765, Expected Cost is (.01765)(50000) = $882.5.

P(63) = .01984, Expected Cost is (.01984)(50000) = $992.

P(64) = .02338, Expected Cost is (.02338)(50000) = $1169

501.5 + 698 + 882.5 + 992 + 1169 = $ 4243

(c) 501.5 + 698 + 882.5 + 992 + 1169 + 700 = $ 4943

(d) The expected profit is (assuming no company overhead): $5000. ? $4243 = $757

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