Question 1115252: Hello! I'm a little stumped on this problem! I would appreciate any help. I'm just a little confused. When it means forfeit, am I paying 25 percent more for the ticket or is the price being reduced?
In planning a trip to New Zealand six months in advance, you find that an airline offers two options: Plan A: You can buy a fully refundable ticket for $2200. Plan B: You can buy a $1200 ticket but you forfeit 25% of the price if the ticket is changed or canceled.
a) What are all possible ticket costs (What you pay for each plan if you keep the ticket or need to change/cancel the ticket)
b) How would you decide which ticket to buy?
Thank you so much! This really helps me!
Answer by math_helper(2461)   (Show Source):
You can put this solution on YOUR website!
a) Refundable ticket: cost is $2200 if you travel. If you cancel, you get your $2200 back so cost is $0.
Nonrefundable ticket: cost is $1200 if you travel. If you cancel, it costs you 0.25($1200) = $300 (and they refund to you $900).
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b) It depends on the likelihood of cancellation. For example,if you are caring for an elderly parent or relative, they might become ill and need your help just before your trip. There are many other scenarios as well, this is just intended to give you the idea. Personally, I think the 25% forfeiture is a good deal, so long as it is reasonably likely you will be able to travel. I'd say if you think it is 75% likely you will travel, get the cheaper ticket and take the chance. If it is less than 75% likely you will travel, get the fully refundable ticket. Of course, these things are really hard to quantify.
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