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Relative frequency approximation

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Reference no: EM131954486

Life Insurance: Your company sells life insurance. You charge a 50 year old man $75 for a one year, $100,000 policy. If he dies over the course of the next year you pay out $100,000. If he lives, you keep the $75. Based on historical data (relative frequency approximation) the average 50 year old man has a 0.9997 probability of living through the year.

(a) What is your expected profit on this policy?

(b) What is the break-even price of such a policy? I.e. What price should you charge to produce an expected profit of zero?

Reference no: EM131954486

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