Hi, anyone knows why we need to times exp(-1.5) when calculating the expected cost per policy for B please????? I used 0.45 * 0.15 * (E(X|E>M) -1500) * 0.05
exp(-1.5) refers to P(X>M). Given this is from an exponential distribution: P(X>M) = 1 - (1- exp(-M*0.001)) = exp(-M*0.001), M = 1500 and hence you get exp(-1.5)