The probability that an 80-year-old male in the U.S. will die within one year is approximately 0.069941.?

The probability that an 80-year-old male in the U.S. will die within one year is approximately 0.069941. If an insurance company sells a one-year, $14,000 life insurance policy to such a person for $495, what is the company's expectation? (Round your answer to two decimal places.)

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  • 6 months ago
    Favorite Answer

    If the probability of death within the year is 0.069941, then the probability of the male being alive at the end of the year is 0.930059.

    In the event there is no death, the company has no payout so only has the $495 revenue. Multiply the revenue by the probability to get that value:

    495 * 0.930059 = 460.379205

    In the event of the death, they have the $495 in revenue and the payout of $14,000. This results in a loss of $13,505. Multiply this by the probability to get that value:

    -13505 * 0.069941 = -944.553205

    Add the two numbers together to get the company's expected outcome:

    460.379205 - 944.553205 = -484.174

    Rounded to two DP we get an expected loss of $484.17.

  • 6 months ago

    That the man will not die (considering you are working with only 1 individual).

    Source(s): accountant - dealing with specifics, not mass sales.
  • Mike G
    Lv 7
    6 months ago

    E(X) = 495-0.069941*14,000

    = -$484.17

  • alex
    Lv 7
    6 months ago

    495(1-0.069941)-14000(0.069941) = -519.79

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  • 6 months ago

    495 - 14,000*0.069941 dollars

    Two decimal places of what?

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