Four years ago, Victor Consuelo purchased a very reliable automobile (as rated by a reputable consumer advocacy

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Four years ago, Victor Consuelo purchased a very reliable automobile (as rated by a reputable consumer advocacy publication). His warranty has just expired, but the manufacturer has just offered him a 5-year, bumper-to-bumper warranty extension. The warranty costs $3,400.
Consuelo constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.
Cost (in $) ... Probability
1,000 ..... 0.25
2,000 ..... 0.45
5,000 ...... 0.20
10,000 .... 0.10

a. Calculate Victor’s expected cost.
b. Given your answer in part a, should Victor purchase the extended warranty? (Assume risk neutrality.) Explain.

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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