Expected profit-expected loss and required probability

Assignment Help Basic Statistics

Reference no: EM1319723

Sara is a 60 year old Anglo female in reasonably good health. She wants to take out a $50,000 term (that is, straight death benefits) life insurance policy until she is 65. The policy will expire on her 65^th birthday. The probability of death in a given year is provided by the Vital Statistics section of the Statistical Absract of the United States.

X = Age (years)	60	61	62	63	64
P(Death at this age)	0.00756	0.00825	0.00896	0.00965	0.01035

Sara is applying to Big Rock Insurance Company for her term insurance policy.

a. What is the probability that Sara will die in her 60^th year? Using this probability and the $50,000 death benefit, what is the expected loss to Big Rock Insurance?

b. Repeat part (a) for years 61, 62, 63 and 64. What would be the total expected loss to Big Rock Insurance over the year 60 through 64?

c. If Big Rock Insurance wants to make a profit of 5700 above the expected total loss paid out for Sara's death, how much should it charge for the policy?

d. If Big Rock Insurance Company charges $5000 for the policy, how much profit does the company expect to make?

Reference no: EM1319723

Questions Cloud

Strength in core technologies and financial staying power : ABC Company wishes to enter a new market arena on the basis of its strength in core technologies and financial staying power. However, the market arena in question is currently dominated by a major competitor with 80 percent of the market share.

Required probability for given probability distribution : By using the age midpoints x and the percentages of nurses, do we have a valid probability distribution? Describe.

Confidence interval estimate for true population mean : Following data represent random sample of bank balances for population of checking account customers at large eastern bank. Based on data, determine the 95 percent confidence interval estimate for true population mean?

Growing perpetuity investment : You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises an initial payment of $28,679 at the end of this year and subsequent payments which will grow at a rate of 4.6 percent annually.

Expected profit-expected loss and required probability : What is the probability that Sara will die in her 60 th year? Using this probability and the $50,000 death benefit, what is the expected loss to Big Rock Insurance?

Compare alimony versus child support from tax perspective : Please discuss and compare alimony versus child support from a tax perspective. Please discuss this issue from the perspective of the payer and from the recipient.

Hypothesis testing of equality of two mean : You want to know whether the population means are different in the two populations. Conduct an hypothesis test using an alpha of .05 and the critical value method.

Best iq score for first born child : Suppose IQ scores were obtained from randomly selected twins. For 20 such pairs of people, the linear correlation coefficient is .896 and the equation of the regression line is y= -.38 + .99x-What is the best IQ score for the first born child.

Critical value using desired confidence level : If desired confidence level is 95 percent, suitable critical value is?

User Account

All Pages