Question

Oxnard Petro Ltd. is buying hurricane insurance for its off-coast oil drilling platform. During the next five years, the probability of total loss of only the above-water superstructure ($240 million) is .40, the probability of total loss of the facility ($940 million) is .40, and the probability of no loss is .20.

Find the expected loss. (Input the amount as a positive value.)

Expected Loss_____$ million

Answer 1

The expected loss for Oxnard Petro Ltd. is $472 million.

Step-by-step explanation:

To find the expected loss for Oxnard Petro Ltd., we need to multiply the probability of each outcome by its corresponding loss and sum up the results.

The expected loss can be calculated as follows:

1. Expected Loss = (Probability of total loss of superstructure) x (Loss of superstructure) + (Probability of total loss of facility) x (Loss of facility)
2. Expected Loss = (0.40) x (240 million) + (0.40) x (940 million)
3. Expected Loss = 96 million + 376 million
4. Expected Loss = 472 million

Therefore, the expected loss for Oxnard Petro Ltd. is $472 million.