Question

If each policy-holder of a one-year life insurance policy has a 0.9999 probability of surviving the year, how much money, on average, will an insurance company make per policy holder if the policy, worth $50,000, costs each policy-holder $1000 for that year?

If a binomial experiment involves flipping a fair coin seven times and counting the number of tails that result, the probability of five tails turning up in seven flips is what?

Answer 1

The probability that a policy holder will not survive that year = 1 - 0.9999 = 0.00001

If a policy holder does not survive, it will cost $50,000 for the company. The expected cost to the company per policy holder = $(50,000 * 0.00001) = $0.5

Now, each policy holder pays $1000 for that year.

The average amount the insurance company makes per policy holder on that year = $1000 - $0.5 = $999.5 (Ans).

The probability on obtaining a tail in toss of a fair coin = 0.5

The probability of five tails turning up in seven flips = = 0.1641 (Ans).