Question

Oxnard Petro Ltd. is buying hurricane insurance for its off-coast oil drilling platform. During the next five years, the probability of total loss of only the above-water superstructure ($320 million) is .30, the probability of total loss of the facility ($820 million) is .30, and the probability of no loss is .40. Find the expected loss. (Input the amount as a positive value.) Expected Loss

Answer 1

Answer:

Expected loss = $342 million.

Step-by-step explanation:

The formula to compute the expected loss is:

$E(Loss)=\sum Loss\ amount\times P (Loss)$

Given:

P (Loss)      Amount of loss

0.30            $320 million

0.30            $820 million

0.40            $0

Compute the expected loss as follows:

$E(Loss)=\sum Loss\ amount\times P (Loss)\\=(0.30\times320)+(0.30\times820)+(0.4\times0)|_{in\ millions}\\=96 +246+0\\=\ 342\ million$

Thus, the expected loss is $342 million.