Insurance Expected Value Problem
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Insurance expected value problem. Expected value 5000 0 8 10000 0 2 4000 2000 2000 the club can expect a return of 2000. Expected value and insurance 1. Expected value can help both insurance companies and policyholders select investments. However if the risk is low enough and the expected value high enough then the particular investment may be viewed more.
Another expected value problem. Another way to think of this is that the insurance company can expect to earn about 50 for each 23 year old male that buys a 1 year 150 000 policy. Answer key to problem set 2. Compute the expected value of this policy to the insurance company.
A we have u w 1 2w 1 2 so u w 1 4w 3 2 as we will see below u w 0 indicates that the individual is risk averse. The expected value is also known as the expectation mathematical expectation mean average or first moment. Sal uses expected value to compare a couple of different insurance policies. Part of the washington open course l.
By definition the expected value of a constant random variable is. An insurance company charges 500 for a life insurance policy. Expected value with empirical probabilities. Past experience shows that 1 in 10 000 policy holders will die forcing the insurance company to payout 1 000 000.
If the expected value of an investment is too low compared to the risk of making this investment it may be viewed as a bad decision. Suppose a life insurance company sells a 240 000 one year term life insurance policy to a 25 year old female for 210. In probability theory the expected value of a random variable is a generalization of the weighted average and intuitively is the arithmetic mean of a large number of independent realizations of that variable. Remember that this is from the point of view of the policyholder.
B the expected amount of money he will lose is. On average how much does the insurance company profit per policy. Also 1 in 5 000 will lose a limb forcing a payout of 100 000. Comparing insurance with expected value.
The probability that the female survives the year is 999592. I thought i would start with x value of 1 12 but i m lost on what my p x x value will be. This means that the expected value for the insurance company is positive. What is the expected value of the policy to the insurance company.
14 insurance example 2 outcomes probability cost to premium company major accident minor accident no accident 0 005 0 08 5000 150 1000 e 0 005 5000 0 08 1000 0 915 0 150 45 1 0 005 0 08 0 915 0.
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