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A tree cutting business has an insurance policy to cover any damages caused during 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 a tree causing damage is 0.002. What is the expected value? The expected value is That means the tree cutting company can expect to 24 on average, per year. Mathematically, would this be considered a "fair" deal between the insurance company and the tree-cutting business?

A tree cutting business has an insurance policy to cover any damages caused during 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 a tree causing damage is 0.002. What is the expected value? The expected value is That means the tree cutting company can expect to 24 on average, per year. Mathematically, would this be considered a "fair" deal between the insurance company and the tree-cutting business?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Expected Value A tree cutting business has an insurance policy to cover any damages caused during 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 a tree causing damage is 0.002. What is the expected value? The expected value is That means the tree cutting company can expect to on average, per year. Mathematically, would this be considered a "fair" deal between the insurance company and the tree-cutting business? Next page MacBook Air %24
Transcribed Image Text:Expected Value A tree cutting business has an insurance policy to cover any damages caused during 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 a tree causing damage is 0.002. What is the expected value? The expected value is That means the tree cutting company can expect to on average, per year. Mathematically, would this be considered a "fair" deal between the insurance company and the tree-cutting business? Next page MacBook Air %24
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