Question

U.T0 D) 0.11 C0.21 D) 0.26 E)0.34 (3) If an electric device fails within the first year of ownership, a warranty contract will rennburse the consumer for 100% of the original cost of the product. If the device fails during the second year, the warranty will cost 60% of the original cost of the prod one replacement per warranty is allowed. The probability that the device will fail during the first year is 0.02 and given the device has not failed during the first year, the probability that the device will fail the second year is 0.06. If the original cost of the product is 81,000, what is the expected benefit of the uct. The warranty expires after two years and only waranty contract? AS24.38 B) $35.00 C) $38.75 D) $42.50 E S55.28
The circled answer is wrong, make sure to show your work to arrive at different correct choice, will rate more points.

Answer 1

expected benefit of the warranty contract =P(fails in first year)*P(warranty cost|fails in first year)+P(fails in second year)*P(warranty cost|fails in second year)

=0.02*1000+(1-0.02)*0.06*0.6*1000=55.28

option E is correct