A university has purchased a service contract for its computers and pays $20 annually for each computer. Maintenance records show that 8% of the computers require some sort of servicing during the year. Furthermore, it is estimated that the average expenses for each repair, had the university not been covered by the service contract, would be about $200. If the university currently has 20 computers, would you advise buying the service contract?
Based on expected costs, for what annual premium per computer will the university be indifferent to purchasing the service contract?
What is the probability of the university spending no more than $500 annually on repairs if it does not buy the service contract?