Suppose you work for a company that manufactures electronics. The development analysts estimate that 1% of their flagship product will fail within 2 years of the purchase date, with a replacement cost of $ 1800. A newly hired associate at the company proposes to charge $ 10 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. E=

b. Interpret the expected value in complete sentences.