River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits,unless there is evidence of criminal negligence.What is the expected loss with insurance?
A) $50,000
B) $650,000
C) $650
D) $50

Question

Quizplus · Accepted Answer

The expected loss with insurance is calculated by multiplying the probability of an incident (1/1000) by the deductible amount ($50,000), resulting in an expected loss of $50.

River Rafting Adventures of Iowa Provides Rafts and Tour Guides