Sara is a 60 -year-old Anglo female in reasonably good health. She wants to
take out a 50,000 dollar term (i.e., straight death benefit) life insurance
policy until she is \(65 .\) The policy will expire on her 65 th birthday. The
probability of death in a given year is provided by the Vital Statistics
Section of the Statistical Abstract of the United States (116th edition).
$$\begin{array}{|l|lcccc|} \hline x=\text { age } & 60 & 61 & 62 & 63 & 64 \\\
\hline P( \text { death at this age) } & 0.00756 & 0.00825 & 0.00896 & 0.00965
& 0.01035 \\ \hline \end{array}$$ Sara is applying to Big Rock Insurance
Company for her term insurance policy.
(a) What is the probability that Sara will die in her 60 th year? Using this
probability and the 50,000 dollar death benefit, what is the expected cost to
Big Rock Insurance?
(b) Repeat part (a) for years \(61,62,63,\) and \(64 .\) What would be the total
expected cost to Big Rock Insurance over the years 60 through \(64 ?\)
(c) If Big Rock Insurance wants to make a profit of 700 dollar above the
expected total cost paid out for Sara's death, how much should it charge for
the policy?
(d) If Big Rock Insurance Company charges 5000 dollar for the policy, how much
profit does the company expect to make?