8/16 MATH 131 Unit 2 Class Activity 2 Expected value is an important concept to

Question

8/16 MATH 131 Unit 2 Class Activity 2 Expected value is an important concept to consider when calculating premiums for insurance. The insurance company will assign probabilities to the possible outcomes for the group based on research data. The company will then use expected value to determine the premium to charge Example 1: Dianne is a 25 year old teacher in good health. Reviewing actuarial tables and based on her age, gender and health, her insurance company has proposed that the probability that she will die this year is 0.001 (a) What is the probability that she will survive the year? If she buys a $100,000 life insurance policy, what are the two possible values the company may pay? (List then in the x column below.) (b) (c) Put the correct Px) value next to your outcomes. (d) Find the expected value for probability distribution. (e) If the company charges a $100 service fee, what should be Dianne's annual premium? P(x) x P(x)

Explanation / Answer

(a) Pr(Dianne survive this year) = 1 - 0.001 = 0.999

(b) Here if dianne die this year, company would pay $ 100,000 and if she doesn't die, company would pay $ 0.

(C)

Here expected value for probability distribution = 0 + 100 = 100

(e) If company charges a $ 100 service fee, then her annual premium would be $ 100 + $ 100 = $ 200

x P(X) xP(x) 0 0.999 0 100000 0.001 100

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.