1. Your own a company that sells insurance. The company classifies each year’s d

Question

1. Your own a company that sells insurance. The company classifies each year’s demand for insurance as High (H), Normal (N) or Low (L). The probability of low demand this year is 0.4 while the probability of normal demand is 0.5. Find the probability of high demand.

2. A gas station sells two types of gasoline: regular and premium. Let X be the amount (in gallons) of regular sold in a day, and Y=amount (also in gallons) of premium sold in a day. Regular is priced at $4/gallon and premium at $4.2/gallon. If E(X)=2000, E(Y)=500, Var(X)2500, Var(Y)=10000, and X, Y are independent. Find the expected revenue, E(R), where R=4X + 4.2Y

3. A die is rolled. If it rolls to a 1, 2 or 3 you win $3. If it rolls to a 4, 5, 6 you lose $2. Find the expected winnings.

Explanation / Answer

3. A die is rolled. If it rolls to a 1, 2 or 3 you win $3. If it rolls to a 4, 5, 6 you lose $2. Find the expected winnings.

Ans: P for each number = 1/6

Expected value = (3/6) * 3 - (3/6) * 2

So,

EV = 9/6 - 1

EV = $ 0.5

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