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 ​$10,000. If the economy grows at a moderate​ pace, the investment will result in a profit of ​$30,000. ​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 ​30% probability the economy will remain​ strong, a 60​% 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?

Answer 1

Answer:

6,000

Explanation:

The expected value from this investment can be calculated by possible values for random variables by multiplying them by their probability

DATA

Strong  = 30,000   , probability = 30%

Moderate = 10,000 , probability = 60%

Weak = -30,000 , probability = 10%

Calculation

Expected profit = Values x Probability

Expected profit = (30,000 x 30%) + (10,000 x 60%) + ( 30,000 x 10%)

Expected profit = 6,000 + 6,000 -6,000

Expected profit = 6,000