Question

Kyle has to make a decision about his health insurance. Under one plan, the monthly cost of insurance is $15, but if he visits a doctor, he has to pay $50 for an office visit.

Kyle estimates that he has a 0.05 probability of needing to visit a doctor in any given month.

What is the expected monthly value of this plan for Kyle?

Answer 1

The expected monthly cost value should be 17.50.

Explanation:

15 * 0.95 + (15 + 50)*0.05 = 17.5

Answer 2

100 - 0.05 = 0.95

Expected monthly cost =

Monthly cost x 0.95 + office visit x 0.05

15 x 0.95 + 50 x 0.05

14.25 + 2.50 = $16.75