An Individual Owns a $100,000 Home

question 17

Essay

An individual owns a $100,000 home. She determines that her chances of suffering a fire in any given year to be 1/1000 (0.001). She correctly calculates her expected loss in any year to be
$100. Explain why this really isn't a good way to measure her potential for loss.

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Definitions:

Long-Term Debt

Debt obligations that are due to be paid back over a period longer than one year, used for significant investments and capital improvements.

Accounts Payable Period

The average amount of time it takes for a business to pay off its suppliers and creditors.

Cost Of Goods Sold

The direct financial outlays for creating goods sold by a company, covering materials and labor.

Cash Cycle

The time it takes for a company to convert its investments in inventory back into cash, encompassing the entire sales and payments process.