Scenario: Health Costs Alan is hoping for a healthy year, meaning that he would have zero health costs.Given his habits, there is a 40% chance that Alan will develop a health issue that will result in $50,000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.
(Scenario: Health Costs) Look at the scenario Health Costs.Given the fact that Alan has a 40% chance of developing a health problem, what is the expected value of Alan's health care costs for the coming year?
A)$0
B)$50,000
C)$20,000
D)$16,000

Question

Quizplus · Accepted Answer

Expected value = (probability of event) * (value if event occurs)Expected value = (0.4) * ($50,000) + (0.6) * ($0)Expected value = $20,000

Scenario: Health Costs Alan Is Hoping for a Healthy Year