You are considering buying a car from a company which offers an insurance plan for a one-time cost today of $75. For this price, the company will cover any repair costs over $50 each year for the next 5 years. You estimate that the probability of the new car requiring a repair exceeding $50 is 0.01 during the first year, 0.025 during the second, 0.045 for the third, 0.07 for the fourth, and 0.10 for the fifth year. Assuming the occurrence of a repair in each year is statistically independent and your MARR is 10%, what annual amount of a repair (exceeding $50) each year for 5 years would make you indifferent to buying the insurance. In other words, at what annual repair amount would you break even on your insurance cost?

You are considering buying a car from a company which offers an insurance plan for a one-time cost today of $75. For this price, the company will cover any repair costs over $50 each year for the next 5 years. You estimate that the probability of the new car requiring a repair exceeding $50 is 0.01 during the first year, 0.025 during the second, 0.045 for the third, 0.07 for the fourth, and 0.10 for the fifth year. Assuming the occurrence of a repair in each year is statistically independent and your MARR is 10%, what annual amount of a repair (exceeding $50) each year for 5 years would make you indifferent to buying the insurance. In other words, at what annual repair amount would you break even on your insurance cost?

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Description: You are considering buying a car from acompany which offers an insurance planfor a one-time cost today of $75. For thisprice, the company will cover any repaircosts over $50 each year for the next 5years. You estimate that the probability ofthe new

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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