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An insurance company charges a 21 year old male a premium of $250 for a one year $100,000 life insurance policy. A 21 year old male has a 0.9985 probability of living for a year.

From the perspective of a 21 year old male (or his estate), what are the values of the two different outcomes
The value if he lives is $_______
The value if he dies is $_______

What is the expected value for a 21 year old male who buys the insurance
The expected value is $_______

What would be the cost of the insurance if the company just breaks even (in the long run with many such policies), instead of making a profit?
$______

Solution Preview

The value if he lives is -$250
The value if he dies is $100000

The expected value is (-$250)(0.9985) + ...

Solution Summary

This solution is comprised of detailed step-by-step calculation and analysis of the given problem and provides students with a clear perspective of the underlying concept.

$2.19