Concept explainers
x = age | 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 the in her 60th year? Using this probability and the $50,000 death benefit, what is the expected cost to Big Rock Insurance?
(b) Repeat part (a) for years 61,62,63, and 64. What would be the total expected cost to Big Rock Insurance over the years 60 through 64?
(c) Interpretation If Big Rock Insurance wants to make a profit of $700 above the expected total cost paid out for Sara’s death, how much should it charge for the policy?
(d) Interpretation If Big Rock Insurance Company charges $5000 for the policy, how much profit does the company expect to make?
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Chapter 6 Solutions
Understanding Basic Statistics
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