Darwin Head, a 35-year-old sawmill worker, won $1 million and a Chevrolet Malibu Hybrid by scoring 15
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No! GM-Canada purchased event insurance from a company specializing in promotions at sporting events such as a halfcourt basketball shot or a hole-in-one giveaway at the local charity golf outing. The event insurance company estimates the probability of a contestant winning the contest, and for a modest charge, insures the event. The promoters pay the insurance premium but take on no added risk as the insurance company will make the large payout in the unlikely event that a contestant wins. To see how it works, suppose that the insurance company estimates that the probability a contestant would win a Million Dollar Shootout is 0.001, and that the insurance company charges $4,000.
a. Calculate the expected value of the profit made by the insurance company.
b. Many call this kind of situation a win-win opportunity for the insurance company and the promoter. Do you agree? Explain.
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Related Book For
Basic Business Statistics Concepts And Applications
ISBN: 9780132168380
12th Edition
Authors: Mark L. Berenson, David M. Levine, Timothy C. Krehbiel
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