Question
You are considering buying a car from a company which offers an insurance plan for a one-time cost today of $75. For this price, the
You are considering buying a car from a company which offers an insurance plan for a one-time cost today of $75. For this price, the company will cover any repair costs over $50 each year for the next 5 years. You estimate that the probability of the new car requiring a repait exceeding 550 is 0.01 during the first year, 0.025 during the second, 0.045 for the third, 0.07 for the fourth and 0.10 for the fifth year
Assuming the occurrence of a repair in each year is statistically independent and your MARR is 10%, what annual amount of a repair leeceeding $50) each year for 5 years would make you indifferent to buying the insurance in other words at what annual repair amount would you break even on your insurance cost?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started