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Andreyy89
3 years ago
8

On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month

period. Revis will receive $39,200 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $19,600 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $19,600 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the expected value of future payments to be received.
Business
1 answer:
Gennadij [26K]3 years ago
6 0

Answer:

The contract price based on the expected value of future payments to be received is $246,960

Explanation:

The computation of the expected value is shown below:

For meeting the target, it will equal to

= (Received amount × number of months + additional amount) × probability rate

= ($39,200 × 6 months + $19,600) × 80%

= $203,840

For not meeting the target, it will equal to

= (Received amount × number of months - additional amount) × remaining  probability rate

= ($39,200 × 6 months - $19,600) × 20%

= $43,120

So, the total expected value would be

= $203,840 + $43,120

= $246,960

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Because the future value of annual premiums deposited in a mutual fund is 755 (F/A, 9%, 45) = $397,023.34, Then, the friend is correct since the mutual fund is roughly three times the sum under the Insurance policy.

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Generally, Premium  payment is mathematically given as

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Complete Question

Liam O'Kelly is 20 years old and is thinking about buying a term life insurance policy with his wife as the beneficiary. The quoted annual premium for Liam is $8.39 per thousand dollars of insurance coverage Because Liam wants a $90,000 policy (which is 2.5 times his annual salary), the annual premium would be $755, with the first payment due immediately (i.e., at age 21). A friend of Liam's suggests that the $755 annual premium should be deposited in a good mutual fund rather than in the insurance policy. "If the mutual fund earns 9% per year, you can become a millionaire by the time you retire at age 65," the friend advises.

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2 years ago
Importers' bank usually issues a ________ to importers in international transactions.
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<h3>Who is a stakeholder?</h3>

A stakeholder can be defined as an independent individual, organization or social group that has an interest in a particular business organization (company), and as such they can either affect or be affected by the decisions taken in the business.

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Answer:

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