Use the Following to Answer Questions

question 107

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) Use 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

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