Every year, an insurance company sells a $500 policy to 100,000customers. In case of death, the company must pay $200,000 to a relative. Assumingthat the each person dies every year with probabilityp= 0.001 independently of othersanswer the following questions:

a. What is the probability that the company makes a profit on any givenyear? Use the relevant approximation.

b. The company goes bankrupt if the first year with losses or no profit isfollowed by another year of losses or no profit. What is the probability that the company goes bankrupt within the first 10 years of existence? (Denote the probability in part (a) bypand express the answer in terms of p).

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Company will make a loss when the total revenue generated is less than the insurance claim paid in c... View the full answer