Your company, an online clothing store, has calculated that a loss of Internet connectivity for 5 hours results in a potential loss of $1,000 to $2,000 and that there is a 50% chance of this occurring. What is the annual expected loss from this exposure?
A) $750
B) $1,000
C) $1,500
D) $2,000
E) $3,000

Question

Quizplus · Accepted Answer

The expected loss is the probability of the loss occurring multiplied by the amount of the loss. In this case, the probability of the loss occurring is 50%, and the amount of the loss is between $1,000 and $2,000. Therefore, the expected loss is between $500 and $1,000. The correct answer is A, $750, which is the midpoint of the range of possible expected losses.

Your Company, an Online Clothing Store, Has Calculated That a Loss