There Is an 80% Probability That Tom Will Be in Good

question 54

Multiple Choice

There is an 80% probability that Tom will be in good health during the year and incur only $200 in medical expenses, but there is a 20% probability that he will be ill and incur $20,000 in medical expenses. If an insurance company charged Tom an actuarially fair premium, how much would Tom pay for health insurance?

• A) $3,840
• B) $4,000
• C) $4,160
• D) $3,460

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Definitions:

Cartilage

Cartilage is a flexible, connective tissue found in various parts of the body, including the joints, nose, and ear, providing support and cushioning.

Highly Vascular Matrix

Describes tissue that contains numerous blood vessels, facilitating high levels of blood flow and nutrient delivery to support its functions.

Survivor's Guilt

A psychological phenomenon where individuals feel guilty for surviving a traumatic event when others did not survive.

Remorse

A deep feeling of regret or guilt for a wrong committed.