Compute the expected fire loss in any year

Reference no: EM132165300

Question: 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.

(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: EM132165300

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