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

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.

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?

a) To determine Riverside's expected profit next year if Laura decides not to purchase flood insurance, we need to calculate the expected value. The expected value is calculated by multiplying each outcome by its corresponding probability and summing them up.

In this case, there are two possible outcomes: no flood and floods. The profits for each outcome are $200,000 and -$1,000,000, respectively. The probability of no flood is (1-0.01) = 0.99 and the probability of floods is 0.01.

Expected Profit = (Profit of no flood * Probability of no flood) + (Profit of flood * Probability of flood)
= ($200,000 * 0.99) + (-$1,000,000 * 0.01)
= $198,000 - $10,000
= $188,000

Therefore, Riverside's expected profit next year, if Laura decides not to purchase flood insurance, is $188,000.

b) To determine Riverside's expected profit next year if Laura purchases flood insurance, we again use the same approach of calculating the expected value.

The profits for each outcome in this case are $190,000 and $200,000 for no flood and floods, respectively. The probabilities remain the same as before: no flood = 0.99 and floods = 0.01.

Expected Profit = (Profit of no flood * Probability of no flood) + (Profit of flood * Probability of flood)
= ($190,000 * 0.99) + ($200,000 * 0.01)
= $188,100 + $2,000
= $190,100

Therefore, Riverside's expected profit next year, if Laura purchases flood insurance, is $190,100.

c) Based on the calculations in parts (a) and (b), the expected profit is higher when Laura purchases flood insurance ($190,100) compared to when she does not purchase it ($188,000).

Therefore, it is recommended that Laura purchases the flood insurance as it is expected to result in higher profits for Riverside Bakery next year.