Question

The probability distribution gives the potential cost of routine maintenance and major repairs in the first 5 years you own a car.Cost over 5 years0$500$1,000$1,500$2,000Probability of cost incurred0.190.670.090.040.01What is the expected cost of routine maintenance and major repairs for the 1st 5 years you own the car? (Recall: the expected value is the mean.)A. 505B. 5000C. 101D. 1000

Answer 1

A. 505

Explanation:

`\begin{array}{cc}cost&probability\\\$0&0.19\\\$500&0.67\\\$1,000&0.09\\\$1,500&0.04\\\$2,000&0.01\end{array}`

The expected cost is given by the sum of each possible outcome's value multiplied by its probability:

`EC = $0*0.19+ \$500*0.67+ \$1,000*0.09+ \$1,500*0.04+ \$2,000*0.01 \\EC=\$505`

The expected cost of routine maintenance and major repairs for the 1st 5 years you own the car is $505.