document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1007234>Question 1007234</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Teddy is considering buying flood insurance. The cost of flood insurance is 400$ per year. Teddy predicts that there is a 20% chance that his house will flood and estimates that a flood will cost $1,000 in damages. If he gets insurance and there is flood damage, the insurance company will pay $1,000 for the damages. Since Teddy only paid 400$ for the insurance , he will essentially save himself 600$. What is the expected value of the savings/losses for Teddy buying insurance?\r<BR>\n" );
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document.write( "a) -200$<BR>\n" );
document.write( "b) 600$<BR>\n" );
document.write( "c) -400$<BR>\n" );
document.write( "or <BR>\n" );
document.write( "d) 120$<BR>\n" );
document.write( "?<BR>\n" );
document.write( "Thank you. I'm pretty stuck. </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #623202 by </B><A HREF=/tutors/aboutme.mpl?userid=Boreal><B>Boreal(15235)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Boreal><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Boreal><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=623202\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> Expected payoff from insurance:<BR>\n" );
document.write( "$1000*0.20=$200<BR>\n" );
document.write( "0*0.80=0<BR>\n" );
document.write( "Expected payoff is $200.<BR>\n" );
document.write( "He pays $400 for insurance.<BR>\n" );
document.write( "He gains only if there is a flood, but he has an expected LOSS of $200.<BR>\n" );
document.write( "A<BR>\n" );
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