Question

A couple book a cruise to Alaska that promises to refund 100 per day of rain on the seven day cruise up to a maximum of 300. The chance of rain on any of the seven days is 0.2 independent of whether it rains in the other days. Find the variance of the refund payment to the couple.

Answer 1

Answer:

the variance of the refund payment to the couple = 9463.394

Step-by-step explanation:

Given that :

A couple book a cruise to Alaska that promises to refund 100 per day of rain on the seven day cruise up to a maximum of 300.

It is possible that the couple won't be able to refund up 100 per day or more than 100 per day.

SO; let assume that the refund payment happens to be 0, 100,200,  300

Let X be the total refund payment on the seven day cruise.

We can say  X = 0, if there is no rain on all 7 days.

$P(X = 0) = _nC_x * P^x * (1 - P)n-x$

$P(X = 0) = _7C_o * 0.2^0 * (1-0.2)^{7-0$

$P(X = 0) =1 * 1* (1-0.2)^{7$

$P(X = 0) =(0.8)^{7$

$P(X = 0) =0.2097152$

If it rains on any one day; then X = 100

$P(X = 100) = _nC_x * P^x * (1 - P)n-x$

$P(X = 100) = _7C_1 * 0.2^1 * (1-0.2)^{7-1$

$P(X = 0) =7 * 0.2* (1-0.2)^{6$

$P(X = 100) =7* 0.2* (0.8)^{6$

$P(X = 100) =0.3670016$

if it rains on any two day  ; then X = 200

$P(X = 200) = _nC_x * P^x * (1 - P)n-x$

$P(X = 200) = _7C_2 * 0.2^2 * (1-0.2)^{7-2$

$P(X = 200) = 21 * 0.2^2 * (0.8)^{5$

$P(X = 200) = 0.2752512$

if it rains on any three day or more than that ; then X = 300

$P(X \ge 300) = 1 - P(X < 300) \\ \\ P(X \ge 300) = 1 - [P(X = 0) + P(X = 100) + P(X = 200)] \\ \\ P(X \ge 300) = 1 - [0.2097152 + 0.3670016 + 0.2752512] \\ \\ P(X \ge 300) = 0.148032$

Now; we have our probability distribution function as:

P(X = 0) = 0.2097152

P(X = 100) = 0.3670016

P(X = 200) = 0.2752512

P(X = 300) = 0.148032

In order to determine the variance of the refund payment to the couple; we use the formula:

variance of the refund payment to the couple$[Var X] =E [X^2] - (E [X])^2$

where;

$E[X^2] = \sum x^2 \times p \\ \\ E[X^2] = 0^2 * 0.2097152 + 100^2 * 0.3670016 + 200^2 * 0.2752512 + 300^2 * 0.148032 \\ \\ E[X^2] = 0 + 3670.016 + 11010.048+ 13322.88 \\ \\ E[X^2] =28002.944$

$(E [X]) = \sum x * p\\ \\ (E [X]) = 0 * 0.2097152 + 100 * 0.3670016 + 200 * 0.2752512 + 300 * 0.148032 \\ \\ (E [X]) = 0 + 36.70016 + 55.05024 + 44.4096\\ \\ (E [X]) = 136.16 \\ \\ (E [X])^2 = 136.16^2 \\ \\ (E [X])^2 = 18539.55$

NOW;

the variance of the refund payment to the couple = 28002.944 - 18539.55

the variance of the refund payment to the couple = 9463.394