Posted by **Stuart** on Monday, February 16, 2009 at 3:57pm.

1) Laura McCarthy, the owner of Riverside Bakery, has been approached by insurance underwriters trying to convince her to purchase flood insurance. According to local meterologist, there is a 0.01 probability that the river will flood next year. Riverside's profits for the coming year depend on whether Laura buys the flood insurance and whether the river floods. The profits (which take into consideration the $10,000 premium for the flood insurance) for the four possible combinations of Laura's choice and river conditions are:

The River

Does not flood Floods

Insurance No flood

Decision Insurance $200,000 -$1,000,000

Get flood Insurance $190,000 $200,000

a) If Laura decides not to purchase flood insurance, use the approach discrete probability

distribution to determine Riverside's expected profit next year.

b) If Laura purchases the flood insurance, what will be Riverside's expected profit next year?

c) Given the results in parts (a) and (b), provide Laura with a recommendation

- Statistics -
**economyst**, Tuesday, February 17, 2009 at 8:55am
As I understand it, the four possibilities flood/no-flood combined with buy/not-buy

That said, I am at a loss trying to understand profit outcomes.

However, just compare the expected values of profits under two scenario: 1) she buys, and 2) she doesnt buy.

Under 1) she buys, her expected value is .01*(profit with flood - premium) + .99*(profit no flood - premium)

take it from here.

- Statistics -
**Jacquelym**, Monday, July 20, 2009 at 3:33pm
An investment counselor would like to meet with 12 of his clients on Monday, but he has time for only 8 appointments. How many different combinations of the clients could be considered for inclusion into his limited schedule for that day?

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