SOLUTION: Mark owns a stamp collection that he is considering getting insured. Over the course of a year it will cost him $500 to keep his collection insured, but if his collection is damage
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Question 1198129: Mark owns a stamp collection that he is considering getting insured. Over the course of a year it will cost him $500 to keep his collection insured, but if his collection is damaged they will pay him $1000.If he estimates there's a 10% chance of his collection being damaged, what is the expected value of buying the insurance policy?
One of the following is correct:
A) $-490
B) $10
C) $-400
D) $100
Which one?
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Expected value of buying the insurance policy;
= expected benefits - insurance cost
chances of collection being damaged % =
Insurance cost
Benefit
Substituting the values;
The expected value of buying the insurance policy is $.
