An investment counselor calls with a hot stock tip He believes that if the econo

Question

An investment counselor calls with a hot stock tip He believes that if the economy remains strong the investment will result in a profit of $60,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000 However if the economy goes into recession the investment will result in a loss of $60,000 You contact an economist who believes there is a 20% probability the economy will remain strong a 70% probability the economy will grow at a moderate pace and a 10% probability the economy will slip into recession What is the expected profit from this investment? The expected profit is $ (Type an integer or a decimal)

Explanation / Answer

Solution:

E(profit) = (60000)(20%) + (10000)(70%) + (-60000)(10%)

= $13000

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