Exercises 57 and 58 refer to the following setting. In Exercises 14 and 18 of
Section \(6.1,\) we examined the probability distribution of the random variable
\(X=\) the amount a life insurance company earns on a 5 -year term life policy.
Calculations reveal that \(\mu_{X}=\$ 303.35\) and \(\sigma_{X}=\$ 9707.57\)
Life insurance The risk of insuring one person's life is reduced if we insure
many people. Suppose that we insure two 21 -year-old males, and that their
ages at death are independent. If \(X_{1}\) and \(X_{2}\) are the insurer's income
from the two insurance policies, the insurer's average income \(W\) on the two
policies is
$$W=\frac{X_{1}+X_{2}}{2}=0.5 X_{1}+0.5 X_{2}$$
Find the mean and standard deviation of W. (You see that the mean income is
the same as for a single policy but the standard deviation is less.)