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You consider buying a used car, but you cannot judge its quality. You can either buy a Toy-Otter or Forth. The Toy-Otter is of high quality with probability 0.8 (in which case the value is $15, 000), and of lower quality with probability 0.2 (in that case the value is $8, 000). The car by Forth Motors is of high quality with probability 0.3 (value is $20, 000), medium quality with probability 0.5 (value is $10, 000), and low quality with probability 0.2 (value is $5, 000). What is the expected value of a Toy-Otter? What is the expected value of the Forth? What is the standard deviation of the value of each car (round to the nearest integer)? Which car is riskier to buy? If you are risk-averse, which car should you buy if the Toy-Otter costs $11, 000 and the Forth $10, 000 (and you have enough money to buy either)? Can one definitely tell which car is better if the Forth cost $9, 000 instead? Show transcribed image text
You consider buying a used car, but you cannot judge its quality. You can either buy a Toy-Otter or Forth. The Toy-Otter is of high quality with probability 0.8 (in which case the value is $15, 000), and of lower quality with probability 0.2 (in that case the value is $8, 000). The car by Forth Motors is of high quality with probability 0.3 (value is $20, 000), medium quality with probability 0.5 (value is $10, 000), and low quality with probability 0.2 (value is $5, 000). What is the expected value of a Toy-Otter? What is the expected value of the Forth? What is the standard deviation of the value of each car (round to the nearest integer)? Which car is riskier to buy? If you are risk-averse, which car should you buy if the Toy-Otter costs $11, 000 and the Forth $10, 000 (and you have enough money to buy either)? Can one definitely tell which car is better if the Forth cost $9, 000 instead?
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Collen VonLv2
1 Aug 2019
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