Math Problem Statement

An insurance company sells a 1-year term life insurance policy to an 75-year-old woman. The woman pays a premium of $2900. If she dies within 1 year, the company will pay $47,000 to her beneficiary. According to the U.S. Centers for Disease Control and Prevention, the probability that an 75-year-old woman will be alive 1 year later is 0.9398. Let X be the profit made by the insurance company. (a) Find the probability distribution.

Solution

To solve this problem, we need to determine the profit distribution, XX, for the insurance company, based on whether the woman lives or dies within the one-year policy period.

Step 1: Define Possible Outcomes for Profit XX

  1. If the woman survives (probability = 0.9398):

    • The insurance company only collects the premium, which is $2900.
    • Therefore, the profit XX for the company is 29002900.
  2. If the woman dies (probability = 10.9398=0.06021 - 0.9398 = 0.0602):

    • The insurance company pays $47,000 to her beneficiary.
    • The profit XX in this case is 290047000=441002900 - 47000 = -44100.

Step 2: Create the Probability Distribution

The probability distribution of XX, the profit made by the insurance company, is as follows:

  • Profit (X) = 2900 with P(X=2900)=0.9398P(X = 2900) = 0.9398
  • Profit (X) = -44100 with P(X=44100)=0.0602P(X = -44100) = 0.0602

So, the distribution is:

\hline X & P(X) \\ \hline 2900 & 0.9398 \\ -44100 & 0.0602 \\ \hline \end{array}$$ Would you like additional details or have any questions? ### Related Questions: 1. How would the distribution change if the premium were different? 2. What is the expected profit for the insurance company based on this distribution? 3. How would changing the probability of survival affect the company’s profit distribution? 4. What would be the impact on the distribution if the payout amount was modified? 5. How does the concept of expected value apply to this problem? ### Tip: Understanding probability distributions is essential in assessing risks and expected outcomes in insurance and financial contexts.

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Math Problem Analysis

Mathematical Concepts

Probability
Probability Distribution
Expected Value

Formulas

Expected Profit Formula: E(X) = Σ [X * P(X)]

Theorems

Basic Probability Theory

Suitable Grade Level

College or Advanced High School (Grades 11-12)