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3 November, 21:15

If a life insurance company sells a $240,000 life insurance policy with a one year term to a 25-year old lady for $210, the probability that she survives the year is. 999592. Find the expected value of this policy for the insurance company?

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  1. 4 November, 00:09
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    Answer: $112.08

    Explanation:

    Given that,

    Life insurance policy = $240,000

    Cost = $210

    Amount to be paid by company to old lady if she survives (A):

    = $240,000 - $210

    = $239,790

    Probability that she survives (P1) = 0.999592

    Probability that she doesn't survives (P2) = 1 - 0.999592

    = 0.000408

    Expected value of this policy for the insurance company:

    = (P1 * cost of policy) - (P2 * A)

    = 0.999592 * $210 - 0.000408 * $239,790

    = $209.91432 - $97.83432

    = $112.08
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