Answer:
The insurance company should charge $1,873.5.
Step-by-step explanation:
Expected earnings:
1 - 0.99813 = 0.00187 probability of the company losing $1 million(if the client dies).
0.99813 probability of the company earning x(price of the insurance).
What premium would an insurance company charge to break even on a one-year $1 million term life insurance policy?
Break even means that the earnings are 0, so:
[tex]0.99813x - 0.00187(1000000) = 0[/tex]
[tex]0.99813x = 0.00187(1000000)[/tex]
[tex]x = \frac{0.00187(1000000)}{0.99813}[/tex]
[tex]x = 1873.5[/tex]
The insurance company should charge $1,873.5.
