(Scenario: Health Costs)Use Scenario: Health Costs

question 145

Multiple Choice

(Scenario: Health Costs) Use Scenario: Health Costs.Given the fact that Alan has a 40% chance of developing a health problem,what is the expected value of Alan's health care costs for the coming year? Scenario: Health Costs
Alan is hoping for a healthy year,meaning that he would have zero health costs.Given his habits,there is a 40% chance that Alan will develop a health issue resulting in $50,000 in health costs.Assume these are the only two conditions that could exist for Alan in the coming year.

• A)$0
• B)$50,000
• C)$20,000
• D)$16,000

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Definitions:

Opportunity Cost

The cost of foregone alternatives; the value of the best alternative that is not chosen in order to pursue a certain action.

Implicit Cost

The opportunity cost associated with a firm's use of resources that it owns, which do not have a direct monetary payment but could generate income if deployed elsewhere.

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at a specified price within a given timeframe.

Rate of Inflation

The percentage increase in the general price level of goods and services in an economy over a period of time.