Jim is a 60-year-old Anglo male in reasonably good health. He wants to take out a $50,000 term (i.e., straight death benefit) life insurance policy until he is 65. The policy will expire on his 65th birthday. The probability of death in a given year is provided.
x = age | 60 | 61 | 62 | 63 | 64 |
---|---|---|---|---|---|
P(death at this age) | 0.01069 | 0.01408 | 0.01618 | 0.02029 | 0.02296 |
Jim is applying to Big Rock Insurance Company for his term insurance policy.
(a)
What is the probability that Jim will die in his 60th year?
(Enter a number. Enter your answer to five decimal places.)
Using this probability and the $50,000 death benefit, what is the
expected cost to Big Rock Insurance (in dollars)? (Enter a number.
Round your answer to two decimal places.)
$
(b)
What is the expected cost to Big Rock Insurance for years 61,
62, 63, and 64 (in dollars)? (For each answer, enter a number.
Round your answers to two decimal places.)
year 61 $
year 62 $
year 63 $
year 64 $
What would be the total expected cost to Big Rock Insurance over
the years 60 through 64 (in dollars)? (Enter a number. Round your
answer to two decimal places.)
$
(c)
If Big Rock Insurance wants to make a profit of $700 above the
expected total cost paid out for Jim's death, how much should it
charge for the policy (in dollars)? (Enter a number. Round your
answer to two decimal places.)
$
(d)
If Big Rock Insurance Company charges $5000 for the policy, how
much profit does the company expect to make (in dollars)? (Enter a
number. Round your answer to two decimal places.)
$
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