an insurance company will sell ₱500,000.00 one-year term leg insurance policy for ramp models for a premium of ₱1,000.00. find the expected value to the company of a single policy if a model has 99.97% chance of being uninsured in one year?
Answers
Given : an insurance company will sell ₱500,000.00 one-year term leg insurance policy for ramp models for a premium of ₱1,000.00.
To find : the expected value to the company of a single policy if a model has 99.97% chance of being uninsured in one year
Solution:
Assume that X is the value to paid then 1000 - E(X) will be the expected Value o the company of a single policy
X P(X) X P(X)
0 99.97 % = 0.9997 0
500,000 1 - 0.9997 = 0.0003 150
∑X P(X) 150
E(X) = ∑X P(X) = 150
1000 - E(X) = 1000 - 150 = 850
the expected value to the company of a single policy =₱ 850
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