An insurance company sells a one-year term life insurance policy to an 80-year-old woman. The woman pays a premium of $1,000. If she dies within one year, the company will pay $20,000 to her beneficiary. According to the CDC, the probability that an 80-year-old woman will be alive one year later is 0.9516. Complete the following to determine the expected value of selling such a life insurance policy.
a.) What are the possible outcomes of the policy for the insurance company? What is the probability of each?
b.) For each outcome from (a), how much money does the insurance company make or lose?
c.) Find the expected value of the policy for the insurance company. Then, interpret the expected value.