Question

there is a 0.99965 probability that a randomly selected ​20-year-old female lives through the year. An insurance company wants to offer her a​ one-year policy with a death benefit of ​$800,000. How much should the company charge for this policy if it wants an expected return of ​$600 from all similar​ policies?

Answer 1

AI-generated answer

To determine how much the insurance company should charge for the policy, we need to consider the expected return and the probability of the event occurring.

First, let's calculate the expected return from the policy. The expected return is the probability of the event occurring multiplied by the amount of the benefit. In this case, the expected return is $600, and the benefit is $800,000.

Expected return = Probability * Benefit

$600 = 0.99965 * $800,000

To find the amount the company should charge for the policy, we can rearrange the equation:

Charge = Expected return / Probability

Charge = $600 / 0.99965

Therefore, the insurance company should charge approximately $600.04 for this policy if it wants an expected return of $600 from all similar policies.

Explanation: