1. A tank behind Tom’s service station has leaked a large quantity of heating oil into the soil below. If left uncontained,experts estimate a 10% chance that the oil will contaminate local drinking water and cause $3 million worth of repairs, and an additional 0.5% chance that the oil will reach both the local aquifer and neighboring waterways, causing a total of $10million worth of damage. 2.1. If these are the only risk factors, what is the expected value of damage from Tom’s tank? Show your calculations. 2.2. If Tom is willing to pay up to $355,00 to an insurance company to cover this risk, what is Tom’s risk burden? Show your calculations.
1. A tank behind Tom’s service station has leaked a large quantity of heating oil into the soil below. If left uncontained,experts estimate a 10% chance that the oil will contaminate local drinking water and cause $3 million worth of repairs, and an additional 0.5% chance that the oil will reach both the local aquifer and neighboring waterways, causing a total of $10million worth of damage. 2.1. If these are the only risk factors, what is the expected value of damage from Tom’s tank? Show your calculations. 2.2. If Tom is willing to pay up to $355,00 to an insurance company to cover this risk, what is Tom’s risk burden? Show your calculations.
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 79DC
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1. A tank behind Tom’s service station has leaked a large quantity of heating oil into the soil below. If left uncontained,experts estimate a 10% chance that the oil will contaminate local drinking water and cause $3 million worth of repairs, and an additional 0.5% chance that the oil will reach both the local aquifer and neighboring waterways, causing a total of $10million worth of damage.
2.1. If these are the only risk factors, what is the expected value of damage from Tom’s tank? Show your calculations.
2.2. If Tom is willing to pay up to $355,00 to an insurance company to cover this risk, what is Tom’s risk burden? Show your calculations.
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