As a birthday gift, you are mailing a new personal digital assistant (PDA) to your cousin in Toledo. The PDA cost $414. There is a 3 percent chance it will be lost or damaged in the mail. Is it worth $4 to insure the mailing?Explain, using the concept of expected value.

It is worth $4 to insure the mailing.

Step-by-step explanation:

The random variable X can be defined as the money value.

The PDA costs, $414.

It is provided that there is a 3% chance it will be lost or damaged in the mail.

So, there is 97% chance it will not be lost or damaged in the mail.

The insurance costs $4.

If the PDA is lost or damaged in the mail when there is no insurance the money value would be of -$414.

And if the PDA is lost or damaged in the mail when there is an insurance the money value would be of $414 - $4 = $410.

Compute the expected value of money as follows:

The expected value of money in case the PDA is lost or damaged in the mail or not is $385.28.

Thus, it is worth $4 to insure the mailing.

536

step-by-step explanation: