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Test 2
Test 2 - Stat 200
For the total loss i.e. 100% the insurance company will charge 80,000 x 0.005 = $400 annually.
For the partial loss i.e. 50% the insurance company will charge (1/2)(80,000) x 0.01 = $400 annually.
For the partial loss i.e. 25% the insurance company will charge (1/4)(80,000) x 0.05 = $1000 annually.
Die Roll Result
X
P(X)
1
$0
1/6
2
$0
1/6
3
$0
1/6
4
$3
1/6
5
$3
1/6
6
$9
1/6
Net Expected Earning = 0 x (1/6) + 0 x (1/6) + 0 x (1/6) + 3 x (1/6) + 3 x (1/6) + 9 x (1/6) = $2.5
Net expected earning $2.5 is greater than the game value $2. Therefore, I would play the game.
P(X ...
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