A video cassette recorder manufacturer is so certain of its quality control that it is offering a complete replacement warranty if a recorder fails within 2 years. Based upon compiled data, the company has noted that only 1 percent of its recorders fail during the first year, whereas 5 percent of the recorders that survive the first year will fail during the second year. The warranty does not cover replacement recorders.

(a) Formulate the evolution of the status of a recorder as a Markov chain whose states include two absorption states that involve needing to honor the warranty or having the recorder survive the warranty period. Then construct the (one-step) transition matrix.

(b) Use the approach described in Sec. 16.7 to find the probability that the manufacturer will have to honor the warranty