A relay microchip in a telecommunications satellite has a life expectancy that follows a normal distribution with a mean of 90 months and a standard deviation of 3.7 months. When this computer relay microchip malfunctions, the entire satellite is useless. A large insurance company is going to ensure that the satellite for $50 million. Assume that the only part of the satellite in question is the microchip. All other components will work indefinitely. 25. If the satellite is insured for 84 months, what is the probability that it malfunctions before the insurance coverage ends? 0.05 26 26. If the satellite is insured for 84 months, what is the expected loss to the insurance company? 27. If the insurance company charges $3 million for 84 months of insurance, how much profit does the company expect to make?
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To calculate the expected loss, we need to know the probability of the satellite being damaged or lost during the 84 months of coverage. Let's assume that the probability is 0.05 (or 5%). Step 2: Calculate the expected loss. The expected loss is calculated by Show more…
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