Find the expected value.
-A 28-year-old man pays $57 for a one-year life insurance policy with coverage of $130,000. If the probability that he will live through the year is 0.9994, what is the expected value for the insurance policy?
A)$21.00
B)-$56.97
C)$129,922.00
D)$78.00

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying each outcome by its probability and summing these products. If the man lives, he loses the premium ($57), and if he dies, his net gain is the coverage minus the premium ($130,000 - $57 = $129,943). Thus, the expected value is (0.9994 * -$57) + (0.0006 * $129,943) = -$56.97 + $77.97 = $21.

Find the Expected Value