If he offers an annual bonus of $10,000 for superior performance, $6,000 for good performance, $3,000 for fair performance, and $0 for poor performance. Based on prior records, he expects an employee to perform at superior, good, fair, and poor performance levels with probabilities 0.10, 0.20, 0.50, and 0.20, respectively. The expected value of the annual bonus amount will be: $3,700
First step
Expected value for Superior performance=$10,000×0.10
Expected value for Superior performance=$1,000
Expected value for Good performance=$6,000×0.20
Expected value for Good performance=$1,200
Expected value for Fair performance=$3,000×0.50
Expected value for Fair performance=$1,500
Expected value for Poor performance=$0×`1,500
Expected value for Poor performance=$0
Now let determine the total expected value of the annual bonus amount
Expected value of annual bonus amount=$1,000+$1,200+$1,500+$0
Expected value of annual bonus amount=$3,700
Inconclusion if he offers an annual bonus of $10,000 for superior performance, $6,000 for good performance, $3,000 for fair performance, and $0 for poor performance. Based on prior records, he expects an employee to perform at superior, good, fair, and poor performance levels with probabilities 0.10, 0.20, 0.50, and 0.20, respectively. The expected value of the annual bonus amount will be: $3,700
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