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 $20,000. However, if the economy goes into recession, the investment will result in a loss of $30,000. You contact an economist who believes there is a 20% probability the economy will remain strong, a 60% probability the economy will grow at a moderate pace, and a 20% 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

Probabiloty that economy will remain strong P(S) = 0.20

Probability that econooy will grow ata a moderate pace = P(M) = 0.60

Probability that the economy willslip into recession = P(R) = 0.20

expected profit = P(S)*30000+P(M)*20000+P(R)*(-30000) = 0.20*30000+0.60*20000-0.20*30000 = 12000

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