A company that makes computers estimates that 2% of their hard drives will fail after the original warrantyperiod ends, with a replacement cost of $350.If the company wants to offer a 2 year extended warranty, what price should they charge so that they'll breakeven (in other words, so the expected value will be 0)?

A company that makes computers estimates that 2% of their hard drives will fail after the original…

Answered: If the company wants to offer a 2 year…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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A life insurer issued a special endowment insurance policy to a life aged 35, with term 5 years. The death benefit payable at the end of the year of death, is equal to £1, 000 plus the reserve that would have been held at the end of the year had the policyholder been alive. The maturity benefit (benefit paid at maturity if the policyholder still alive) is £1, 000. The premium is £200, payable annually in advance. The basis is AM92 ultimate life table and the interest is 4% per annum. (a) Find the reserve just before the payment of the 3rd premium by using the recursive relation between reserves. (b) Find the policy value at issuance using the same recursive method as above. (c) Explain why your answer to (b) is not consistent with the equivalence principle and give two examples of how this may have arisen.
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If the company wants to offer a 2 year extended warranty, what price should they charge so that they'll break even (in other words, so the expected value will be 0)?