Question

There is a 50% probability that the Arum company’s sales will be 10 million next year, a 20% probability that they will be $5 million, and a 30 % probability that they will be $3 million. Solve the expected sales of Arum company next year.

a) $6 million
b) $7 million
c) $8 million
d) $9 million

Answer 1

The expected sales of the Arum company next year is $6.9 million, which is closest to option a) $6 million.

Step-by-step explanation:

To find the expected sales of the Arum company next year, we need to multiply each possible sales amount by its corresponding probability and then add them together. The expected sales can be calculated as follows:

Expected Sales = (Sales Amount 1 x Probability 1) + (Sales Amount 2 x Probability 2) + (Sales Amount 3 x Probability 3)

Expected Sales = ($10 million x 0.50) + ($5 million x 0.20) + ($3 million x 0.30)

Expected Sales = $5 million + $1 million + $0.9 million

Expected Sales = $6.9 million

Therefore, the expected sales of the Arum company next year is $6.9 million, which is closest to option a) $6 million.