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.

Answer 1

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

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.