Test 2

Test 2 - Stat 200

For the total loss i.e. 100% the insurance company will charge 80,000 x 0.005 = $400 annually.

For the partial loss i.e. 50% the insurance company will charge (1/2)(80,000) x 0.01 = $400 annually.

For the partial loss i.e. 25% the insurance company will charge (1/4)(80,000) x 0.05 = $1000 annually.

Die Roll Result

X

P(X)

1

$0

1/6

2

$0

1/6

3

$0

1/6

4

$3

1/6

5

$3

1/6

6

$9

1/6

Net Expected Earning = 0 x (1/6) + 0 x (1/6) + 0 x (1/6) + 3 x (1/6) + 3 x (1/6) + 9 x (1/6) = $2.5

Net expected earning $2.5 is greater than the game value $2. Therefore, I would play the game.

P(X ...