Use the Following to Answer Questions

question 155

Multiple Choice

Use the following to answer questions:
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.
-(Scenario: Health Costs) Look at the scenario Health Costs. Suppose that Alan decides to change his habits dramatically and as a result decreases the probability of his developing a health problem such that he now has a 20% chance of becoming ill. What is the expected value of Alan's health costs now?

• A) $0
• B) $10,000
• C) $20,000
• D) $2,000