20.20 Life insurance. You might sell insurance to a 20-year-old friend. The probability that a man aged 20 will die in the next year is about 0.0007. You decide to charge $2000 for a policy that will pay $1 million if your friend dies. a. What is your expected profit on this policy? b. Although you expect to make a good profit, you would be foolish to sell a single policy only to your friend. Why? c. A life insurance company that sells thousands of policies, on the other hand, would do very well selling policies on exactly these same terms. Explain why.

20.20 Life insurance. You might sell insurance to a 20-year-old friend. The probability that a man aged 20 will die in the next year is about 0.0007. You decide to charge $2000 for a policy that will pay $1 million if your friend dies. a. What is your expected profit on this policy? b. Although you expect to make a good profit, you would be foolish to sell a single policy only to your friend. Why? c. A life insurance company that sells thousands of policies, on the other hand, would do very well selling policies on exactly these same terms. Explain why.

College Algebra

10th Edition

ISBN:9781337282291

Author:Ron Larson

Publisher:Ron Larson

Chapter8: Sequences, Series,and Probability

Section8.7: Probability

Problem 11ECP: A manufacturer has determined that a machine averages one faulty unit for every 500 it produces....

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