The expected value is the average loss or gain of an event if the procedure is repeated multiple times. The expected value is calculated by multiplying each outcome by the probability of that outcome and then adding the products. Example: Given a person's chance of living is 0.9986 in that year ,. This person decided to pay for life insurance for $161 for the year. If this person pass away in that year, the insurance company will pay $100,00. Probability of living = 0.9986 Probability of dying = 1-0.9986 = 0.0014 Gain/Loss from living = -$161 Gain/Loss from death = $100,000 Expected value = $100,000 (0.0014) + (-$161
The
Example: Given a person's chance of living is 0.9986 in that year ,. This person decided to pay for life insurance for $161 for the year. If this person pass away in that year, the insurance company will pay $100,00.
Probability of living = 0.9986
Probability of dying = 1-0.9986 = 0.0014
Gain/Loss from living = -$161
Gain/Loss from death = $100,000
Expected value = $100,000 (0.0014) + (-$161)*0.9986 = 140-160.7746 = -$ 20.7746
The expected value is -$20.7746 which indicates the average loss for an individual buying this policy and the company stands to gain $20.7746 from selling one insurance policy.
Do you think you can give some detailed calculations for warranty?
From the given information,
The probability of living is 0.9986.
That is, P(living)=0.9986
The probability of dying is 0.0014.
That is, P(dying)=0.0014
Gain/Loss from living = -$161
Gain/Loss from death = $100,000
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