How should the company price the warranty

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Reference no: EM131959265

Question: A company sells an extended 3-year warranty coverage for a product. The product has a price P (at any time in the future), and its life span has a constant hazard rate lambda. The extended warranty is sold at the time of the purchase of the product in a single payment, and unconditionally replaces a defect product within the 3-year coverage. Assume that the interest rate is r compounded continuously. How should the company price the warranty?

Reference no: EM131959265

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