key_ex_set_4_spring_2008

# key_ex_set_4_spring_2008 - ANSWER KEY BMGT 230 Exercise Set...

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ANSWER KEY – BMGT 230, Exercise Set 4, Due 29 February 2009 (10 points) 1. Suppose L and M are events and their probabilities, Pr(L) and Pr(M), are both positive. a. If L and M are mutually exclusive events, what is Pr(L ∩ M)? If L and M are mutually exclusive, Pr(L ∩ M) = 0 b. If L and M are independent events, explain why Pr(L ∩ M) is positive. If L and M are statistically independent events, Pr(L ∩ M) = Pr(L) x Pr(M); because Pr(L) > 0 and Pr(M) > 0, Pr(L) x Pr(M) > 0 c. Can two mutually exclusive events, each having a positive probability of occurring, also be independent? Explain briefly – basically use the answers to parts a. and b. to support your answer. No – from a., Pr(L ∩ M) = 0; from b., Pr(L ∩ M) > 0. Obviously, = 0 differs from > 0. 2. An insurance company sells a \$75,000 tornado insurance policy to a resident of Lawrence, Kansas, for \$1000. The U.S. Weather Bureau estimates that the probability of a tornado hitting Lawrence equals 0.005. a. What is the insurance company’s expected profit/loss on the insurance policy?

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key_ex_set_4_spring_2008 - ANSWER KEY BMGT 230 Exercise Set...

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