. A stats instructor spills wine (Australian Shiraz) on his laptop keyboard. The

Question

. A stats instructor spills wine (Australian Shiraz) on his laptop keyboard. The laptop cannot be fixed and the instructor spends $1600 on its replacement. If 3 years insurance can be purchased for $200 (which would replace the computer in such an event as spilled wine), what would the probability have to be of an event such as the spilling of wine occurring in the next 3 years for the insurance to be a fair bet? (Real data, ignore depreciation, taxes, and other complications. A fair bet is one which has expectation equal to zero.)

Explanation / Answer

For the insurance to be a fair bet, the expectation should be equal to zero).

Cost on replacement = $1600

Cost of insurance = $200

Let the probability of spilling of wine on laptop keyboard in next 3 years be p

Net expectation = 1600 * p - 200 = 0

-> p = 1/8

Thus, the required probability = 0.125

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.