If a 60 year old buys a $1000 life insurance policy at a cost of $50 and has a probability of 0.954 of living to age 61 find the expectation

Question

If a 60 year old buys a $1000 life insurance policy at a cost of $50 and has a probability of 0.954 of living to age 61 find the expectation of the policy until the person reaches 61. round your answer to the nearest cent.

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Trúc Chi 1 day 2021-07-22T06:38:38+00:00 1 Answers 0 views 0

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    2021-07-22T06:39:55+00:00

    Answer:

    The expectation of the policy until the person reaches 61 is of -$4.

    Step-by-step explanation:

    We have these following probabilities:

    0.954 probability of a loss of $50.

    1 – 0.954 = 0.046 probability of “earning” 1000 – 50 = $950.

    Find the expectation of the policy until the person reaches 61.

    Each outcome multiplied by it’s probability, so:

    E = -0.954*50 + 0.046*950 = -4

    The expectation of the policy until the person reaches 61 is of -$4.

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