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 ​$60 comma 000. If the economy grows at a moderate​ pace, the investment will result in a profit of ​$10 comma 000. ​However, if the economy goes into​ recession, the investment will result in a loss of ​$60 comma 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?

Answer 1

$6,000

Step-by-step explanation:

The computation of the expected profit from this investment is shown below:

= Strong profit × Strong percentage + Moderate profit × moderate percentage - recession losses × recession percentage

= $60,000 × 20% + $10,000 × 60% - $60,000 × 20%

= $12,000 + $6,000 - $12,000

= $6,000

By adding the three situations we can get the expected profit from this investment