Answer:
In the long run, they should expect to make $86 on each policy sold.
Step-by-step explanation:
There's a 96% chance the holder lives to 70. If this happens, the insurance company loses nothing.
There's a 4% chance the holder dies before 70. If this happens, the insurance company loses $21,300.
Either way, the company earns $938 from selling the policy.
So the expected value of each policy is:
E = 938 + (0.96)(0) + (0.04)(-21300)
E = 86
In the long run, the company is expected to make $86 from each policy sold.
