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

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 $30,000. If the economy grows at a moderate pace, the investment will result in a profit of $10,000 However, f the economy goes into recession, the investment will result in a loss of $30,000 You contact an economist who believes here 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) = (30000)(20%) + (10000)(70%) + (-30000)(10%)
  
= (30000)(0.2) + (10000)(0.7) + (-30000)(0.1)

= 6000+7000-3000
  
= 10000

The expected profit is $10000
  
  

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.