Question

Osman, Sello and Danda Pvt Ltd sells maintenance agreements valid for 1 year for the refrigerators

they make. Osman, Sello and Danda has established a probability distribution of costs incurred

during the 1 year warranty period as follows:

COST PROBABILITY

R0 0:88

R2 500 0:07

R5 000 0:02

R7 500 0:02

R10 000 0:01

Answer 1

Expected value:

$E(X)=2500\cdot0.07+5 000\cdot 0.02+7 500\cdot0.02+10 000\cdot0.01=R\ 525$