Assume that the daily probability of a major earthquake in Los Angeles is .07 percent. The chance of your computer center being damaged during such a quake is 5 percent. If the center is damaged, the average estimated damage will be $1.6 million.

a. Calculate the expected loss (in dollars).

b. An insurance agent is willing to insure your facility for an annual fee of $15,000. Analyze the offer, and discuss whether to accept it.