A 100000 life insurance policy costs 600 for one year If the

A $100,000 life insurance policy costs $600 for one year. If the probability that persons in the population from which the policy owners comes, lives for 1 year is 0.9985, do the calculations in questions a and b.

a.) What are the two possible outcomes? Nb: Each outcome is a compound event with a cost associated with it

b.) What is the expected value (mean) of this transaction?

Solution

answer of part (a) is

the two possible outcome are

answer of part (b) is

the expected value of transaction is 0.9985*600+.0015*100000=$750