So I came across this problem yesterday when I was in the meeting room. Someone left it behind the table.
In summary, it is like this:
Life insurance term is for five year. The benefit starts at 25000 if the person die 1st year. Then, it decreases by 5k each year for the next 4yrs.
Probability that he dies each year, given that he is alive at the begining of that year is 0.01
Find expected benefit.
So I set up a table,
X = pr[die]
Y= benefit
Year 1: p(x) = 0.01 p(x') = 0.99 y= 25000
Year 2: p(x) = (0.99)(0.01) px' = 1 - (0.99)(0.01) y = 20000
So on and so forth, until year 5
I calculated E[Y] = 745.02
...so, the nearest choices were 740 and 750, so I think it was 750 bc of rounding up...but there is st about this that bugs me so much.
Can someone please check if my aproach is correct ?
Thanks :D
In summary, it is like this:
Life insurance term is for five year. The benefit starts at 25000 if the person die 1st year. Then, it decreases by 5k each year for the next 4yrs.
Probability that he dies each year, given that he is alive at the begining of that year is 0.01
Find expected benefit.
So I set up a table,
X = pr[die]
Y= benefit
Year 1: p(x) = 0.01 p(x') = 0.99 y= 25000
Year 2: p(x) = (0.99)(0.01) px' = 1 - (0.99)(0.01) y = 20000
So on and so forth, until year 5
I calculated E[Y] = 745.02
...so, the nearest choices were 740 and 750, so I think it was 750 bc of rounding up...but there is st about this that bugs me so much.
Can someone please check if my aproach is correct ?
Thanks :D
Not sure if I overthinking this problem...
