Four years ago, Victor Consuelo purchased a very reliable automobile (as rated b

Question

Four years ago, Victor Consuelo 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. Consuelo constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.

Four years ago, Victor Consuelo 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. Consuelo constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.

Explanation / Answer

expected cost = 1100 X 0.20 + 2700 X 0.38 + 5400 X 0.23 + 9500 X 0.19 = $ 4293

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