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Asked Oct 20, 2019
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Brandybuck Insurance Company (BIC) is deciding whether to insure the lives of those leading a quest to Moria.  Based on past experience, the probability of surviving such a quest is 80.6%.  If BIC charges a premium of 8,499 silver coins and would pay a death benefit of 52,297 silver coins if the insured were to die, what is the expected value of this insurance policy to BIC?

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Probability Survival Insurance company makes Survived 8499 0.806 Not Survived 0.194 -43798 Expected value of this insurance policy to BIC is given by E (X) 0.806 x 8499 + 0.194 x (-43798) =-1646. 618 -ve sign indicates loss to insurance company

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Probability

Basic Probability

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