Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one in Florida.
Each plant is valued at $50 million. Acme's risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apart. What is the probable maximum loss associated with a single hurricane
Hurricanes usually hit the southernmost states of the USA and considering the fact that all three manufacturing plants are in the southernmost states, it would be reasonable to assume that a single hurricane can wipe out at least one or two since Alabama and Florida are really close to each other and Texas is known to get hurricanes. It usually just depends on where the hurricane occurs.
where a can be any real number except 0