- #1
Hodgey8806
- 145
- 3
Homework Statement
The initial value of an appliance is $700 and it's value in the future is given by:
v(t)=100(2^(3-t)-1), 0<=t<=3
where t is time in years. Thus, after the first 3 years the appliance is worth nothing as far as the warranty is concerned. If it fails in the first three years, the warranty pays v(t). Compute the expected value of the payment on the warranty if T has an exponential distribution with mean 5.
Homework Equations
I would think to use E(x) = int(x*v(t), 0<=t<=3) which is approximately 574.14977
I would also use the probability of it failing in the first three years which would be:
P(T<=3) = 1- e^-(3/5) which is approximation .4512 .
The Attempt at a Solution
Thus, my solution would be .4512*574.14977 which is approximately $259.05.
Is this correct? Thanks!