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t many airports, a person can pay only $1 for a $100,000 life insurance policy covering the duration of the flight. in other words, the insurance company pays $100,000 if the insured person dies from a possible flight crash; otherwise the company gains $1. suppose that past records indicate 0.45 deaths per million passengers. how much can the company expect to gain on one policy? on 100,000 policies?

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uzairteacher

At many airports, a person can pay only $1 for a $100,000 life insurance policy. The company can expect to gain $99,999 on one policy on 100,000 people.

Gain values : $1 ;-$999,999

The Probabilities of those gain value :

999,999.55/1000000

0.45/1,000,000

E(x) = [999999.55 - 0.45)/1000000 = 0.99999999.

On 100,000 people the company can expect to make:

Gain = 100000*0.999999999

Gain = $99,999

So, the company can expect to gain $99,999 on one insurance policy on 100,000 people.

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