Question

18) An insurance company says that at age 50 one must choose to take $10,000 at age 60, $30,000 at 70, or $50,000 at 80 ($0 death benefit). The probability of living from 50 to 60 is 0.88, from 50 to 70, 0.64, and from 50 to 80, 0.49. Find the expected value at each age. A) 60: $8800 70: $26,400 80: $44,000 B) 60: $6400 70: $19,200 80: $24,500 C) 60: $8800 70: $14,700 80: $24,500 D) 60: $8800 70: $19,200 80: $24,500

Answer 1

Solution Expected value probabi- tity nount of benefits P.650 to 6o)=0.88, P.650 to 70) = 0.64 -AD n is the amo Ap where is the bho=fost essed ander & -fraas) u acraesfet tasu 8800 Also toso) = $5,000 Expected value foto fa)=12,00 0 x 0.88 Expected Value (50 to 70) = 30,000 X 0'64 Expected Value 60 to 8) = 50,000 x 0.49 24,500 option 19, 200