An LG Dishwasher, which costs $800, has a 20% chance of needing to be replaced in the first 2 years of purchase. A two-year extended warranty costs $112.10 on a dishwasher. What is the expected value of the extended warranty assuming it is replaced in the first 2 years?

Question

Business

Camryn Spencer

14 November, 05:01

An LG Dishwasher, which costs $800, has a 20% chance of needing to be replaced in the first 2 years of purchase. A two-year extended warranty costs $112.10 on a dishwasher. What is the expected value of the extended warranty assuming it is replaced in the first 2 years?

+3

Answers (1)

Know the Answer?

Jeffery · Answer 1

The expected value of the extended warranty assuming it is replaced in the first 2 years is $687.90.

Explanation:

since the dishwasher has a 20% chance of needing to be replaced in the first 2 years, then:

the value of warranty = 20%*$800 - $112.10

= $160 - $112.10

= $47.10

when it is assumed that replacement is done in first two years, then the value of warranty increases to $800 - $112.10 = $687.90

Therefore, the expected value of the extended warranty assuming it is replaced in the first 2 years is $687.90.