# Random Variables

• Nov 17th 2012, 06:47 AM
mous99
Random Variables
Suppose a life insurance company sells a \$50,000, five-year term policy to a twenty-five-year old woman. at the beginning of each year the woman is alive, the company collects a premium of \$P. the probability that the woman dies and the company pays the \$50,000, is given in the below. So, for example, in Year 3, the company loses\$50,000 - \$ P with probability 0.00054 and gains \$P with probability 1- 0.00054 = 0.99946. If the company expects to make \$1000 on this policy, what should P be?

--------------------------------------…
Year Probability
--------------------------------------…
1 0.00051
2 0.00052
3 0.00054
4 0.00056
5 0.00059
--------------------------------------
• Nov 17th 2012, 12:24 PM
SpringFan25
Re: Random Variables
compute...
[A]over the full 5 years, what is the expected premium income in terms of P?
[B] over the full 5 years, what is the expected death payment?

Find the value of p that makes [A]-[B] = 1000.