Explanation Approach: The compliment of the probability is given as, p ′ = 1 − p … ( 1 ) Here, p ′ is the compliment of the probability and p is the probability. The expected value is given as, E = a 1 p 1 + a 2 p 2 + ⋯ + a n p n … ( 2 ) Here, a 1 , a 2 , … , a n is the amount of payout and p 1 , p 2 , … , p n is the probability of payout. Given: The probability of lightning striking a house in a year is 0.0003 , the average cost of repairs of lightning damage is $ 7500 per incident. And, the company charges $ 25 per year for lightning insurance. Calculation: Calculate the probability of lightning not striking the house. Substitute 0 To determine (b) The company’s expected yearly income from lightning insurance.

4th Edition

ISBN: 8220100548512

Author: Watson

Publisher: CENGAGE L

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Chapter 14.4, Problem 20E

To determine

(a)

The expected value for each lightning insurance policy.

To determine

(b)

The company’s expected yearly income from lightning insurance.

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Chapter 14.4, Problem 19E

Chapter 14.4, Problem 21E

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(a) The expected value for each lightning insurance policy.

Solution Summary: The author explains how to determine the expected value for each lightning insurance policy.