Question 1171280
.


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.



<U>ANSWER</U>. &nbsp;&nbsp;Your expected value of buying the maintenance contract is -56.40 dollars.


&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notice the sign &nbsp;&nbsp;" - " &nbsp;&nbsp;before the number.