stats proabability help

Statistics
Tutor: None Selected Time limit: 1 Day

The CAN Insurance Company charges Mike $250 for a one‐year life policy. In the event of his death, Mike’s family will receive $100000. Based on his age, there is a .9985 probability he will live for one year. If Mike purchases the policy, what is the insurance company’s expected value on the policy?

Jul 8th, 2015

(.9985 *250) - (.0015 *99750) =

100

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 8th, 2015

how did you get tis answer exactly ? thank you

Jul 8th, 2015

Let "gain" be the random variable.

Its values are +250 and -(10000-250)

Corresponding probabilities are 0.9985 and 0.0015

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E(x) = 250*0.9985 and -99750*0.0015 

E(x) = $100

The company can expect to gain $100 during that particular year. 

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Jul 8th, 2015

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Jul 8th, 2015

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Jul 8th, 2015

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Jul 8th, 2015

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Jul 8th, 2015
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