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Question: A company sells an extended 3-year warranty coverage for a product. The product has a price P (at any time in the future), and its life span has a constant hazard rate . The extended warranty is sold at the time of the purchace of the product in a single payment, and unconditionally replaces a defect product within the 3-year coverage. Assume that the interest rate is r compounded continuously. How should the company price the warranty?

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Basic Finance, Finance

Category:- Basic Finance
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