According to the Social Security Administration Period life

According to the Social Security Administration Period life Table, the probability a 70-year-old male will die In the next year is about 0.018. The cost of a $10,000 life insurance policy for a 70-yoar-old male from one company Is about $540 per year. John Is a 70 year old man. He pays $540 at the beginning of the year for a $10,000 life insurance policy. If John dies this year, will the insurance company make money or loss money on his policy this year? How much money will the company make or lose? What is the probability John will die during the year? If John lives for the entire year will the company make money or have to pay money? How much money will the company make or lose? What is the probability John lives during the year? Let x represent the amount of money that the insurance company earns this year from this man\'s policy. When the company loses money the amount of money earned is negative. Construct a discrete probability distribution for x by completing the table below. What is the expected value of the amount of money that the insurance company will earn this year on this policy? Interpret the expected value of the random variable.

Solution

11) A) if john dies this year then the insurance company will loose money as they have to pay the insurance amount to the john family.

B) company will losse 10000 - 540 = 9460

= company will loose 9460 money

c) probability that he will die is given = 0.018

d) if john lives for the entire year the company will make money as now they dont have tp pay the policy amount.

e) company will make = $540 as given a fees for policy

f) probability that he will live = 1-0.018 = 0.982