Richies insurance company offers a 250,000 life insurance policy for a premium of $750 per year. If the probability you live through the year is .9977 what is the expected value to the insurance company
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
Let X be the net value of the policy to the insurance company. X be the discrete random variable.
The person who lives through the year-
- Premium amount is 750.
- The amount paid by the company will be 0.
- Net profit of the company is (750-0=750).
- Probability of the person who lives through the year is 0.9977.
The person who dies within the 1 year period is
- Premium amount is 750.
- The amount paid by the company is 250,000.
- Net profit of the company is (750-250,000=-249,250).
- Probability that the person dies within the 1 year period is (1-0.9977=0.0023).
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