You have a $9000 motorcycle and a $850 bicycle. The probability that your motorcycle will be stolen next year is .02, but the probability that your bike will be snatched is .1. The insurance company offers you theft protection for your motorcycle for $200 and theft protection for your bicycle for $75. What is the expected value of the motorcycle protection? What is the expected value of the bicycle protection?

Answer 1

expected value of motorcycle protection = .02(9000) = 180
expected value of bike protection = .1(850) = 85