Question

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids. Management has determined that there is one chance in a thousand of a customer being injured or killed. Settlement of resulting lawsuits has an average cost of $850,000. Insurance with a $100,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance?

Answer 1

Expected loss without insurance = $850

Step-by-step explanation:

Given:

Probability to got injured or killed = 1 / 1000

Law suit average cost = $850,000

Deductible insurance = $100,000

Expected loss without insurance = ?

Computation of Expected loss without insurance:

Expected loss without insurance = Lawsuit average cost × Probability to get injured or killed

Expected loss without insurance = $850,000 × (1 / 1000)

Expected loss without insurance = $850