Need help Q3 Th Unit 4 TexP Flag questionExpected ValueA tree cutting business has an insurance policy to cover any damages causedduring the tree cutting process. The business pays an annual premium of$1,500 for a policy that covers up to $500,000 in damages. The probability of atree causing damage is 0.002. What is the expected value?The expected value isThat means the tree cutting company can expect toon average, per year.Mathematically, would this be considered a "fair" deal between theinsurance company and the tree-cutting business?Next pagePrevious page2:56 PM12/9/2020

Name: Need help Q3 Th Unit 4 TexP Flag questionExpected ValueA tree cutting
Uploaded: 2024-03-20T07:06:41.000Z
Channel: Bartleby
Description: Need help Q3 Th Unit 4 TexP Flag questionExpected ValueA tree cutting business has an insurance policy to cover any damages causedduring the tree cutting process. The business pays an annual premium of$1,500 for a policy that covers up to $500,000 in

Given information: P(Damage) = 0.002 P(No Damage) =1- P(Damage) =1-0.002=0.998Expected value=500000-1500×PDamage-1500×P(No damage)-=498500×0.002-1500×0.998=997-1497=-$500 That means the tree cutting company can expect to lose $500 on average per year. The expected value for a fair deal should be 0, in this case expected value is not 0, hence mathematically this deal would not be considered a fair deal.