### Expected Value ExerciseThe expected value is $___ *(Round to the nearest cent as needed.)*Which of the following interpretations of the expected value is correct? Select the correct choice below and fill in the answer box to complete your choice. *(Round to the nearest cent as needed.)*- **A.** The insurance company expects to make a minimum profit of $___ on every 20-year-old female it insures for 1 month.- **B.** The insurance company expects to make a maximum profit of $___ on every 20-year-old female it insures for 1 year.- **C.** The insurance company expects to make a profit of $___ on every 20-year-old female it insures for 1 year.- **D.** The insurance company expects to make a profit of $___ on every 20-year-old female it insures for 1 month. **Life Insurance Expected Value Analysis**Suppose a life insurance company sells a $180,000 1-year term life insurance policy to a 20-year-old female for $320. According to the National Vital Statistics Report, 58(21), the probability that the female survives the year is 0.999544. Compute and interpret the expected value of this policy to the insurance company.**Understanding the Concept:**- **Probability of Surviving:** 0.999544- **Probability of Not Surviving:** 1 - 0.999544 = 0.000456- **Policy Premium:** $320- **Payout if Death Occurs:** $180,000**Calculating Expected Value:**1. **Expected profit if the insured survives:** - Profit = Premium = $3202. **Expected loss if the insured does not survive:** - Loss = $180,000 payout - $320 premium = $179,6803. **Expected Value Calculation:** - Expected Value (EV) = (Probability of Surviving * Profit) + (Probability of Not Surviving * Loss) - EV = (0.999544 * $320) + (0.000456 * -$179,680)4. **Interpretation:** - The expected value represents the average amount the insurance company expects to gain per policy sold, considering the probabilities of survival and death.By computing the above values, the insurance company can understand the risk and profitability of offering such insurance policies.

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Answered: The expected value is $ (Round to the…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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