Four years ago, Victor purchased a very reliable automobile (as rated by a reputable consumer advocacy publication). His warranty has just expired, but the manufacturer has just offered him a 5-year, bumper-to-bumper warranty extension. The warranty costs $4,500. Victor constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.

Cost ($) Probability
800 0.16
2400 0.39
5400 0.25
11700 0.20
Calculate Victor's expected cost.

Respuesta :

Answer:

$4,754

Explanation:

The computation of the Victor's expected cost is shown below:

= Cost × Probability + Cost × Probability + Cost × Probability + Cost × Probability

= $800 × 0.16 + $2,400 × 0.39 + $5,400 × 0.25 + $11,700 × 0.20

= $128 + $936 + $1,350 + $2,340

= $4,754

We simply multiply the cost with its probability to find out the expected cost