**How do I find the expected value? ** Suppose you work for a company that manufactures electronics. The development analysts estimate that 5% of their flagship product will fail within 2 years of the purchase date, with a replacement cost of $ 1200.

A newly hired associate at the company proposes to charge $ 50 for a 2-year warranty.

A. Compute the expected value of this proposal. Let X be the amount profited or lost (by the company) on the warranties and P(X) is the probability.

B. Interpret the expected value.