Careful analysis of the cost of fire insurance

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Reference no: EM131809614

An engineer decided to make a careful analysis of the cost of fire insurance for his $200,000 home. From a fire rating bureau he found the following risk of fire loss in any year.

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(a) Compute his expected fire loss in any year.

(b) He finds that the expected fire loss in any year is less than the $550 annual cost of fire insurance. In fact, an insurance agent explains that this is always true. Nevertheless, the engineer buys fire insurance. Explain why this is or is not a logical decision.

Reference no: EM131809614

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