Brandybuck insurance company (BIC) is deciding whether to ensure the lives of th

Question

Brandybuck insurance company (BIC) is deciding whether to ensure the lives of those leading a quest to Maria. Based on past experience, the probability of surviving such a quest is 82.2%. If BIC charges a premium of 7, 500 silver coins and would pay a death benefit of 26,000 silver coins if the insured were to die, what is the expected value of this insurance policy to BIC? Round to the nearest silver coin as needed. If the expected value is a loss to BIC, enter you answer as a negative number phil Dunphy, a real estate agent, is considering whether he should list an unusual $ 415,00 house for sale. If he lists, it he will need to spend $3, 600 in advertising, staging, and fresh cookies. The current owner has given phil 6 month to sell the house. If he sells it, he will receive a commission of $ 23,000 If he is unable to sell the house, he will lose the listing and his expense. Phil estimates the probability of selling this house in 6 month to be 51%. What is the expected profit on this listing?

Explanation / Answer

1) let the number of people leading the quest be 1000,

probability of surviving the quest = 82.2%

Therefore, number of people who survive =822

no. of people who die = 1000-822 = 178

premium collected = 1000 x 7500silver coins = 7,500,000 silver coins

Total death benifit payment = 178 x 26000silver coins = 4,628,000 silver coins

profit = 7500000 - 4628000 = 2,872,000 silver coins which is the expected value for 1000 quests,

therefore for a single quest, the expected value = 2872 silver coins.

2) if he is able to sell, profit = 23000-3600= 19400

probability of selling = 51%

therefore profit from selling= 51%19400= 9894

However, if he is unable to sell,

loss = 3600

probability of not selling = 49%

therefore, loss = 49%3600 = 1764

therefore, expected profit = 9894-1764 = 8130.

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