Lois is considering buying a new bicycle for $200. It has a 20% chance of breaking down in the next year. What is the expected value in terms of repair cost for this purchase?
A) $240
B) $400
C) $20
D) $200
E) $40

Question

Quizplus · Accepted Answer

The expected value of repair cost can be calculated by multiplying the cost of repairs by the probability of it breaking down. Assuming the cost of repairs is $40, the expected value would be:

Expected Value = 0.20 * $40 = $8

Therefore, the best choice would be not to buy the bicycle as the expected value of repair cost is only $8, which is much lower than the cost of the bicycle.

Lois Is Considering Buying a New Bicycle for $200