Question

There is a 0.9986 probability that a randomly selected 31​-year-old male lives through the year. A life insurance company charges ​$147 for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out ​$100,000 as a death benefit. Complete parts​ (a) through​ (c) below.

Answer 1

The expected value for the company is: $6.7942.

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The expected value is given by each outcome multiplied by it's probability.

For the company:

• 0.9986 probability of earning $147.
• 1 - 0.9986 = 0.0014 probability of losing $100,000.

Thus:

$E(X) = 0.9986(147) - 0.0014(100000) = 6.7942$

The expected value for the company is: $6.7942.

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