35 year old female buys a 0,000 one-year term life insurance policy for 0. Based on a life period table for the U.S. govn’t, the probability she will survive the year is .999057. From her perspective, what is the expected value of the policy?
I have the formula, but I’m not so sure how to set everything up. The example shown in class involved the lottery and the win/lose was the event. I’m just not sure how to transfer this information to that formula- all help is appreciated!
mathprofrockstar 3:50 pm on August 30, 2010
The expected value of the policy is the probability that the policy pays (i.e., she dies) multiplied by the amount it pays. In this case, it is:
100,000(.000943) = $94.30.
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