The probability that an 80-year-old male in the U.S. will die within one year is approximately 0.069941. If an insurance company sells a one-year $10,000 life insurance policy to such a person for $495 what is the company's expectation?

Answer 1

The company's expectation can be calculated by multiplying the payout amount by the probability of death and subtracting the cost of the policy.

Expected payout = 10,000 * 0.069941 = $699.41
Company's expectation = Expected payout - Cost of policy = 699.41 - 495 = $204.41

Therefore, the company's expectation is $204.41.