AboutPaul Klarreich Expertise I can answer questions in basic to advanced algebra (theory of equations, complex numbers), precalculus (functions, graphs, exponential, logarithmic, and trigonometric functions and identities), basic probability, and finite mathematics, including mathematical induction.
I can also try (but not guarantee) to answer questions on Abstract Algebra
-- groups, rings, etc. and Analysis -- sequences, limits, continuity.
I won't understand specialized engineering or business jargon.
Experience I taught at a two-year college for 25 years, including all subjects from algebra to third-semester calculus.
Question If a 28 year old pays $207.00 for a one year life insurance policy worth $70K and there is a .9994 probably that he will live through the year, what is the expected value of the insurance policy.
The answer in the book says -$165.00 but I cannot see how to do this. Please help ASAP
Answer Questioner: Nancy
Country: United States
Category: Advanced Math
Private: Yes
Subject: Statistical Question - ASAP
Question: If a 28 year old pays $207.00 for a one year life insurance policy worth $70K and there is a .9994 probably that he will live through the year, what is the expected value of the insurance policy.
The answer in the book says -$165.00 but I cannot see how to do this. Please help ASAP
................................................
Hi, Nancy,
Expected value of an event = p(event) * result of event.
Expectation = sum of all expected values.
In this case:
Event: Death in this year.
p(death) = 0.0006
value of death = 70000.
E.V.(death) = 0.0006 * 70000 = 42
Event: You survive for this year.
p(life) = .9994
value of life (excuse the expression) = 0.
E.V.(life) = 0.
Sum = 42.
But actually you must subtract the 207 from that: 42 - 207 = -165.
