Scenario 17.3
Consider the following information:
The probability of a fire in a factory without a fire prevention program is 0.01. The probability of a fire in a factory with a fire protection program is 0.001. If a fire occurred, the value of the loss would be $300,000. A fire prevention program would cost $80 to run.
-Refer to Scenario 17.3. If the fire protection program were in place, the company could insure the warehouse for a premium equal to:
A) the loss from the fire, $300,000.
B) the expected loss from the fire, $300.
C) the expected loss from the fire, $3,000.
D) the cost of the fire protection program, $80.
E) $0.

Question

Quizplus · Accepted Answer

The expected loss from a fire with a fire protection program in place is calculated as the probability of the event occurring (0.001) multiplied by the value of the loss ($300,000), which equals $300. This represents the expected loss from the fire, making option B correct.

Scenario 17.3 Consider the Following Information