How do you do expected value/insurance AP Statistics problems?
Insurance for your new computer costs $ 100. There is a 10% chance the computer will break and you will need repairs. Repairs would cost $ 200. How much of a profit is the insurance seller getting/should you get the insurance?
I appreciate a step by step explanation of how to do this problem.
insurance best answer:
Answer by Furian
so we know that 90% of the time the insurer wont have to pay for repairs and thus gains $ 100 the other 10% it loses 100.
so we can find the expected value by multiplying the expected payout with the probability of that payout:
.9*100+.1*(-100)=90-10=80 so the insurance company is expected to net $ 80 per unit.
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