1.Amazon has three packages (Package A, Package B, and Package C) that is to be
ID: 3126589 • Letter: 1
Question
1.Amazon has three packages (Package A, Package B, and Package C) that is to be shipped to Bill’s address. Package A is worth $100, Package B is worth $200, and Package C is worth $300. All three packages have a 90% chance of arriving and a 10% chance of being lost in transit. Set up a probability distribution with the appropriate probabilities for each possible outcome. (3 points) What is the expected loss (P*)? (2 points) How much risk does Amazon face in this delivery purchase. (i.e. –what is the coefficient of variation)? (1 point)
Explanation / Answer
What is the expected loss (P*)
100 * 0.10 + 200 * 0.10 + 300 * 0.10
60
How much risk does Amazon face in this delivery purchase. (i.e. –what is the coefficient of variation)?
SD =
srqt(100^2 * 0.10 + 200^2 * 0.10 + 300^2 * 0.10 - 60^2)
101.98
Coefficient of variation 60 / 101.98 = 0.5883 = 58.83%
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