Scenario 17.3
Consider the following information:
The probability of a fire in a factory without a fire prevention program is 0.01. The probability of a fire in a factory with a fire protection program is 0.001. If a fire occurred, the value of the loss would be $300,000. A fire prevention program would cost $80 to run.
-Refer to Scenario 17.3. If there is no insurance and no fire protection program in place, the expected loss from fire for this company is:
A) $0.
B) $300.
C) $3,000.
D) $6,000.
E) $300,000.

Question

Quizplus · Accepted Answer

The expected loss is calculated by multiplying the probability of the event (fire) by the value of the loss if the event occurs. Without a fire prevention program, the probability of a fire is 0.01, and the loss value is $300,000. Therefore, the expected loss is 0.01 * $300,000 = $3,000.

Scenario 17.3 Consider the Following Information