Oxnard Petro Ltd. is buying hurricane insurance for its off-coast oil drilling platform. During the next five years, the probability of total loss of only the above-water superstructure ($320 million) is .30, the probability of total loss of the facility ($820 million) is .30, and the probability of no loss is .40. Find the expected loss. (Input the amount as a positive value.) Expected Loss

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warylucknow warylucknow · Answer 1 · 2020-03-09T10:16:05+01:00

Answer:

Expected loss = $342 million.

Step-by-step explanation:

The formula to compute the expected loss is:

[tex]E(Loss)=\sum Loss\ amount\times P (Loss)[/tex]

Given:

P (Loss) Amount of loss

0.30 $320 million

0.30 $820 million

0.40 $0

Compute the expected loss as follows:

[tex]E(Loss)=\sum Loss\ amount\times P (Loss)\\=(0.30\times320)+(0.30\times820)+(0.4\times0)|_{in\ millions}\\=96 +246+0\\=\$342\ million[/tex]

Thus, the expected loss is $342 million.