Karen A. answered 04/09/19
Friendly Mathematics Tutor
Karen A.The expected value of the benefit is 100,000 x .01 + 10,000 *.19 + 500*.6 + 0*2 = 3200 --------The expected value of the gain to the customer is less than the premium, however this is normal for insurance. If the customer has assets well in excess of $100,000 then it is unlikely that the policy is worth the price. However, if the customer has assets less than $100,000 and is risk adverse, he may be willing to pay the premium to avoid the possibility of bankruptcy.