SOLUTION: Suppose the warranty period on your family's new computer is about to expire and you are debating about whether to buy a one-year maintenance contract for $130. If you buy the cont
Algebra.Com
Question 1171280: Suppose the warranty period on your family's new computer is about to expire and you are debating about whether to buy a one-year maintenance contract for $130. If you buy the contract, all repairs for one year are free. Consumer information shows that 23% of the computers like yours require an annual repaid that costs $320 on the average. What is the expected value of buying the maintenance contract?
Answer by ikleyn(52781) (Show Source): You can put this solution on YOUR website!
.
Your expected value of buying the maintenance contract is
0.23*320 - 130 dollars = -56.40 dollars.
In wording form :
If you do not buy the contract, then with the probability of 0.23 you will be forced to pay $320 for repair, which is $73.60.
If you do buy the contract, you pay $130 for contract, avoiding the fees for repair.
In other words, buying the contract, you give them $130, but avoid to lose $73.60.
So, you pay $56.40 dollars to the insurance company for your "peace in mind".
$56.40 is the profit of the insurance company - it is for what they established their business.
ANSWER. Your expected value of buying the maintenance contract is -56.40 dollars.
Notice the sign " - " before the number.
RELATED QUESTIONS
2.)Suppose the warranty period on your family’s new television is about to expire and you (answered by stanbon)
Each year, ratings are compiled concerning the performance
of new cars during the first... (answered by ikleyn)
Here is my question. I am totally lost in this class I am taking. Your help is greatly... (answered by stanbon)
Monique is starting her own on-line business selling jewellery that she makes. It cost... (answered by nyc_function)
Julia is starting her own on-line business selling jewellery that she makes. It cost her... (answered by Fombitz)
The Instructions: Solve this word problem using an inequality. Express the answer as an... (answered by ewatrrr)
You and your parents are working on a scrap book representing your family tree. You would (answered by ikleyn)
determine the unknown quantities and represent these with appropriate variables.... (answered by solver91311)
60. In establishing warranties on HDTV sets, the manufacturer wants to set the limits so... (answered by stanbon)