Question
A man won $3 million by scoring 15 goals in 25 seconds in a contest at a sports game that was sponsored by a business.
A man won $3 million by scoring 15 goals in 25 seconds in a contest at a sports game that was sponsored by a business. Did the business risk the $3million? No! The business purchased event insurance from a company specializing in promotions at sporting events. The event insurance company estimates the probability of a contestant winning the contest and, for a modest charge, insures the event. The promoters pay the insurance premium but take on no added risk as the insurance company will make the large payout in the unlikely event that a contestant wins. To see how it works, suppose that the insurance company estimates that the probability a contestant would win the contest is 0.0017 and that the insurance company charges $11,500. Complete parts (a) and (b).
a. Calculate the expected value of the profit made by the insurance company. $nothing (Round to the nearest dollar as needed.)
b. Many call this kind of situation a winwin opportunity for the insurance company and the promoter. Do you agree? Explain.
A.No, this is not winwin. The insurance company wins, since its expected profit is positive, and the promoter loses, since it makes a payment that is greater than its expected loss without insurance.
B.Yes, this is a winwin, since both the insurance company and the promoter increase their expected profits and decrease their risks.
C.Yes, this is a winwin. The promoter wins because it is able to attain the benefits of running the
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