Question

There is a 0.9984 probability that a randomly selected 32​-year-old male lives through the year. A life insurance company charges ​$194 for insuring that the male will live through the year. If the male does not survive the​ year, the policy pays out ​$110,000 as a death benefit. .

From the perspective of the 32-year-old male, what are the monetary values corresponding to the two events of surviving the year and not surviving?

Answer 1

From the perspective of the 32-year-old male, the monetary values corresponding to surviving the year is -$194 and for not surving the year is $109 806.

Explanation:

If the 32 year old survives the year it means he has to pay $194 towards the policy denoted by the negative sign. However if he does not survive the year it means he gets the death benefit - cost of the policy that is

$110 000-$194= $109 806.