Question 1198129


Expected value of buying the insurance policy;

{{{EV}}} = expected benefits - insurance cost

{{{EV = xE - C}}}

chances of collection being damaged {{{x = 10}}}% ={{{ 0.1}}}

Insurance cost {{{C = 500}}}

Benefit {{{E = 1000}}}

Substituting the values;

{{{EV = 0.1 *1000 - 500 = 100 - 500}}}

{{{EV = -400}}}

The expected value of buying the insurance policy is ${{{-400}}}.


answer:    C) ${{{-400}}}