There is a 0.9986 probability that a randomly selected 30-year-old male will live through the year. A life insurance company charges $161 for insuring that the male will live through the year. If he does not survive the year, the policy pays out $100,000 as a death benefit.
a. From the perspective of the 30-year-old male, what are the values corresponding to the two events of surviving the year and not surviving the year?
b. What are the probabilities associated with the two events, surviving and not surviving?
c. If a 30-year-old male purchases the policy, what is his expected value?
d. Can the insurance company expect to make a profit from many such policies? Why?
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