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There is a 0.9986 probability that a randomly selected 30​-year-old male lives through the year. A life insurance company charges ​$166 for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out ​$110 comma 000 as a death benefit. From the perspective of the 30​-year-old ​male, what are the monetary values corresponding to the two events of surviving the year and not​ surviving?

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Answer:

There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. A life insurance company charges $161 for insuring that the male lives through the year. If the male does not survive the year, the policy pays out $100,000 as a death benefit.

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a. From the perspective of the insurance company what are the values corresponding to the two events of surviving the year and not surviving?

Random Number values: 161 and (-100,000+161)

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b. What is the expected value for the insurance company?

E(x) = 0.9986*161 + 0.0014*(-99839) = $21.00

Step-by-step explanation:

There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. A life insurance company charges $161 for insuring that the male lives through the year. If the male does not survive the year, the policy pays out $100,000 as a death benefit.

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a. From the perspective of the insurance company what are the values corresponding to the two events of surviving the year and not surviving?

Random Number values: 161 and (-100,000+161)

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b. What is the expected value for the insurance company?

E(x) = 0.9986*161 + 0.0014*(-99839) = $21.00

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