Question

A plane ticket to Hawaii costs $986.
Travel insurance (which will refund the
entire purchase) is $47 if the trip is
canceled. Find the expected value if
there's a 13% chance of the trip being
canceled. Round to the nearest cent.

Feedback:
Multiply each outcome by its probability and add them up.

Answer 1

Using the given discrete distribution, it is found that the expected value is of $863.93.

What is the mean of a discrete distribution?

The expected value of a discrete distribution is given by the sum of each outcome multiplied by it's respective probability.

In this problem, the distribution of costs is given by:

- P(X = 986) = 0.87.

- P(X = 47) = 0.13.

Hence, the expected value is given by:

E(X) = 0.87 x 986 + 0.13 x 47 = $863.93.

More can be learned about discrete distributions at