An insurance company is going to charge $760 for a 1-year $180000 policy for men

Question

An insurance company is going to charge $760 for a 1-year $180000 policy for men who don't smoke and are 26 years old. The probability that this group of men will die in the next year is 0.0035.

(1) What is the probability of this group of men living? (write as a decimal, not a %, rounded to 4 decimal places)

(2) What is the Expected Value of this policy for the insurance company? $ ----------per policy

(3) How much money would 1000 policies like this generate for the insurance company? $---------------

Explanation / Answer

1)

P(live) = 1 - P(die) = 1 - 0.0035 = 0.9965 [answer]

2)

If someone dies, the profit of the company is 760 - 180000 = -179240.

If someone lives, the profit is $760.

Thus,

E(x) = 0.0035*(-179240) + 0.9965*760 = $130 [answer]

3)

Thus,

E(1000x) = 1000E(x) = $130,000 [ANSWER]

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