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Value Of Extended Warranties

Help please! Value of expected probability ipod problem?

Problem: You pay $ 50 for an extended warranty for an iPod that costs $ 350 which gives a new iPod if something goes wrong in the first three years. The probability that something goes wrong is 2.5%. What is the expected value for the company? (Hint: if something goes wrong the company lost $ 350 - $ 50, pay the cost of the warranty.) Here's how I do it, but I'm doing wrong. Please show me wrong measures: the increasing loss of $ 50 $ 50 p (x) for: 0975 / 3 p (x) for loss: 0025 / 3 xp times (x): 975 / 3 * 50 = 16.25 025 / 3 * 50 = 0.417 15.833 on the average loss that probably I'm doing p (x) wrong. Thanks for the quick help! THANK YOU! That was helpful!

Apple either gains or loses $ 50 $ 300 E (x) = 50 (97.5%) - 300 (2.5%) E (X) = 50 (.975) - 300 (0.025) E (x) = from 41.25 is expected to earn $ 41.25 for each security sold voila

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